EX-99.2 5 d706676dex992.htm EX-99.2

Exhibit 99.2

|  | CONTENTS TOKIO MILLENNIUM RE (UK) LIMITED Financial Statements Report For The Year Ended 31 December 2018

Contents |  |  |  |
Report of Independent Auditors |  |  | 2 |
Statements of Comprehensive Income |  |  | 3 - 4 |
Statements of Financial Position: Assets |  |  | 5 |
Statements of Financial Position: Liabilities |  |  | 6 |
Statements of Changes in Equity |  |  | 7 |
Statements of Cash flows |  |  | 8 |
Statement of Accounting Policies |  |  | 9 - 13 |
Notes to the Financial Statements |  |  | 14 - 43 |

Page 1

Report of Independent Auditors

To the Board of Directors of Tokio Millennium Re (UK) Limited

We have audited the accompanying financial statements of Tokio Millennium Re (UK) Limited which comprise the statements of financial position as at 31 December 2018 and 2017, and the related statements of comprehensive income, changes in equity and cash flows for the years then ended, which as described in accounting policies section (a), have been prepared on the basis of accounting principles generally accepted in the United Kingdom.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in United Kingdom; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements 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 Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tokio Millennium Re (UK) Limited as of 31 December 2018 and 2017, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United Kingdom.

PricewaterhouseCoopers LLP, 7 More London Riverside, London, SE1 2RT T: +44 (0) 2075 835 000, F: +44 (0) 2072 127 500, www.pwc.co.uk

PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of

PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.

Basis of Accounting

As discussed in statement of accounting policies section (a), the Company prepares its financial statements on the basis of accounting principles generally accepted in the United Kingdom, which differs from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

London, United Kingdom

22 March 2019

|  | STATEMENTS OF COMPREHENSIVE INCOME TOKIO MILLENNIUM RE (UK) LIMITED

|  | Notes |  | 2018 £000 |  |  | 2017 £000 |
EARNED PREMIUMS, NET OF REINSURANCE |  |  |  |  |  |  |  |  |  |
Premiums written |  |  |  |  |  |  |  |  |  |
Gross amount |  | 2(a),2(b) |  |  | (8,216 | ) |  |  | (5,135 | )
Reinsurers’ share |  |  |  |  | 77 |  |  |  | (284 | )
|  |  |  |  | (8,139 | ) |  |  | (5,419 | )
Change in the provision for unearned premiums |  |  |  |  |  |  |  |  |  |
Gross amount |  | 3 |  |  | 1,882 |  |  |  | 8,380 |
Reinsurers’ share |  | 3 |  |  | (291 | ) |  |  | (321 | )
|  |  |  |  | 1,591 |  |  |  | 8,059 |
Earned premiums, net of reinsurance |  | 4 |  |  | (6,548 | ) |  |  | 2,640 |
CLAIMS INCURRED, NET OF REINSURANCE |  |  |  |  |  |  |  |  |  |
Claims paid |  |  |  |  |  |  |  |  |  |
Gross amount |  | 5 |  |  | (32,840 | ) |  |  | (54,782 | )
Reinsurers’ share |  | 5 |  |  | 293 |  |  |  | 866 |
|  |  |  |  | (32,547 | ) |  |  | (53,916 | )
Change in the provision for claims |  |  |  |  |  |  |  |  |  |
Gross amount |  | 5,6(a) |  |  | 42,713 |  |  |  | 58,871 |
Reinsurers’ share |  | 5,6(a) |  |  | 197 |  |  |  | (4,355 | )
|  |  |  |  | 42,910 |  |  |  | 54,516 |
Claims incurred, net of reinsurance |  | 5 |  |  | 10,363 |  |  |  | 600 |
Operating expenses, net of reinsurance |  |  |  |  |  |  |  |  |  |
Gross amount |  | 7 |  |  | (1,946 | ) |  |  | 2,618 |
Reinsurers’ share |  | 7 |  |  | (314 | ) |  |  | 1,469 |
|  |  |  |  | (2,260 | ) |  |  | 4,087 |
BALANCE ON THE TECHNICAL ACCOUNT FOR GENERAL BUSINESS |  | 2(a) |  |  | 1,555 |  |  |  | 7,327 |
INVESTMENT RETURN |  |  |  |  |  |  |  |  |  |
Investment income |  | 8 |  |  | 6,551 |  |  |  | 6,083 |
Realised loss on investments |  |  |  |  | (3,880 | ) |  |  | (3,130 | )
Unrealised loss on investments |  |  |  |  | (671 | ) |  |  | (737 | )
Investment expenses and charges |  |  |  |  | (343 | ) |  |  | (523 | )
Total investment return |  |  |  |  | 1,657 |  |  |  | 1,693 |
OTHER INCOME AND CHARGES |  |  |  |  |  |  |  |  |  |
Other income |  | 9(a) |  |  | 5 |  |  |  | 205 |
Other charges |  | 9(b) |  |  | (579 | ) |  |  | (1,156 | )
|  |  |  |  | (574 | ) |  |  | (951 | )
OPERATING PROFIT AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAX |  |  |  |  | 2,638 |  |  |  | 8,069 |
Tax charge on profit on ordinary activities |  | 10(a) |  |  | (492 | ) |  |  | (1,411 | )
PROFIT FOR THE FINANCIAL YEAR |  |  |  |  | 2,146 |  |  |  | 6,658 |

Page 3

|  | STATEMENTS OF COMPREHENSIVE INCOME TOKIO MILLENNIUM RE (UK) LIMITED

|  | Notes |  |  | 2018 £000 |  |  | 2017 £000 |
PROFIT FOR THE FINANCIAL YEAR |  |  |  |  |  |  | 2,146 |  |  |  | 6,658 |
OTHER COMPREHENSIVE INCOME |  |  |  |  |  |  |  |  |  |  |  |
Gain on revaluation of group undertaking |  |  |  |  |  |  | — |  |  |  | 608 |
TOTAL COMPREHENSIVE INCOME FOR THE YEAR |  |  |  |  |  |  | 2,146 |  |  |  | 7,266 |

Page 4

|  | STATEMENTS OF FINANCIAL POSITION : ASSETS TOKIO MILLENNIUM RE (UK) LIMITED

|  | Notes |  |  | 2018 £000 |  |  | 2017 £000 |
INVESTMENTS |  |  |  |  |  |  |  |  |  |  |  |
Other financial investments |  |  | 11 |  |  |  | 364,851 |  |  |  | 375,128 |
Deposits with ceding undertakings |  |  | 12 |  |  |  | 1,336 |  |  |  | 1,503 |
|  |  |  |  |  |  | 366,187 |  |  |  | 376,631 |
REINSURERS’ SHARE OF TECHNICAL PROVISIONS |  |  |  |  |  |  |  |  |  |  |  |
Provision for unearned premiums |  |  | 3 |  |  |  | 31 |  |  |  | 317 |
Claims outstanding |  |  | 6(a) |  |  |  | 1,948 |  |  |  | 1,692 |
|  |  |  |  |  |  | 1,979 |  |  |  | 2,009 |
DEBTORS |  |  |  |
Debtors arising out of direct insurance operations |  |  | 13 |  |  |  | 47 |  |  |  | 47 |
Debtors arising out of reinsurance operations |  |  | 14 |  |  |  | 5,783 |  |  |  | 13,070 |
Other debtors including taxation and social security |  |  | 15 |  |  |  | 11 |  |  |  | 1,297 |
|  |  |  |  |  |  | 5,841 |  |  |  | 14,414 |
OTHER ASSETS |
Tangible assets |  |  | 16 |  |  |  | — |  |  |  | 37 |
Cash at bank and in hand |  |  |  | 19,200 |  |  |  | 34,944 |
|  |  |  | 19,200 |  |  |  | 34,981 |
PREPAYMENTS AND ACCRUED INCOME |
Accrued interest |  |  |  |  |  |  | 2,161 |  |  |  | 2,617 |
Deferred acquisition costs |  |  | 17 |  |  |  | 48 |  |  |  | 554 |
Other prepayments and accrued income |  |  | 18 |  |  |  | 113 |  |  |  | 260 |
|  |  |  |  |  |  | 2,323 |  |  |  | 3,431 |
TOTAL ASSETS |  |  |  |  |  |  | 395,529 |  |  |  | 431,466 |

Page 5

|  | STATEMENTS OF FINANCIAL POSITION : LIABILITIES TOKIO MILLENNIUM RE (UK) LIMITED

|  | Notes |  |  | 2018 £000 |  |  | 2017 £000 |
CAPITAL AND RESERVES |  |  |  |  |  |  |  |  |  |  |  |
Called up share capital |  |  | 19 |  |  |  | 125,000 |  |  |  | 125,000 |
Profit and loss account |  |  |  |  |  |  | 81,669 |  |  |  | 79,523 |
Total equity |  |  |  |  |  |  | 206,669 |  |  |  | 204,523 |
TECHNICAL PROVISIONS |  |  |  |  |  |  |  |  |  |  |  |
Provision for unearned premium |  |  | 3 |  |  |  | 766 |  |  |  | 2,604 |
Claims outstanding |  |  | 6 | (a) |  |  | 180,016 |  |  |  | 219,665 |
|  |  |  |  |  |  | 180,782 |  |  |  | 222,269 |
PROVISIONS FOR OTHER RISKS AND CHARGES |  |  |  |  |  |  |  |  |  |  |  |
Onerous lease |  |  | 20 |  |  |  | — |  |  |  | 335 |
Provision for taxation |  |  | 10 | (d) |  |  | 280 |  |  |  | 235 |
|  |  |  |  |  |  | 280 |  |  |  | 570 |
CREDITORS |  |  |  |  |  |  |  |  |  |  |  |
Creditors arising out of insurance operations |  |  |  |  |  |  | 7 |  |  |  | 7 |
Creditors arising out of reinsurance operations |  |  |  |  |  |  | 6,483 |  |  |  | 2,625 |
Other creditors including taxation and social security |  |  | 21 |  |  |  | 670 |  |  |  | 404 |
|  |  |  |  |  |  | 7,160 |  |  |  | 3,036 |
ACCRUALS AND DEFERRED INCOME |  |  |  |  |  |  |  |  |  |  |  |
Reinsurers’ share of deferred acquisition costs |  |  | 17 |  |  |  | 2 |  |  |  | 21 |
Other accruals and deferred income |  |  | 22 |  |  |  | 636 |  |  |  | 1,047 |
|  |  |  |  |  |  | 638 |  |  |  | 1,068 |
TOTAL EQUITY AND LIABILITIES |  |  |  |  |  |  | 395,529 |  |  |  | 431,467 |

The consolidated financial statements on pages 4 to 44 were approved by the Board of Directors on 22 March 2019 and signed on its behalf by:

Mark Julian
Chief Executive Officer

Page 6

|  | STATEMENTS OF CHANGES IN EQUITY TOKIO MILLENNIUM RE (UK) LIMITED

|  | 2018 |
|  | Share capital £000 |  |  | Revaluation reserve £000 |  |  | Profit and loss account £000 |  |  | Total equity £000 |
At beginning of year |  |  | 125,000 |  |  |  | — |  |  |  | 79,523 |  |  |  | 204,523 |
Profit after tax |  |  | — |  |  |  | — |  |  |  | 2,146 |  |  |  | 2,146 |
At end of year |  |  | 125,000 |  |  |  | — |  |  |  | 81,669 |  |  |  | 206,668 |
|  | 2017 |
|  | Share capital £000 |  |  | Revaluation reserve £000 |  |  | Profit and loss account £000 |  |  | Total equity £000 |
At beginning of year |  |  | 125,000 |  |  |  | 1,561 |  |  |  | 70,696 |  |  |  | 197,257 |
Profit after tax |  |  | — |  |  |  | — |  |  |  | 6,658 |  |  |  | 6,658 |
Revaluation gain on disposal of subsidiary |  |  | — |  |  |  | 608 |  |  |  | — |  |  |  | 608 |
Disposal of subsidiary |  |  | — |  |  |  | (2,169 | ) |  |  | 2,169 |  |  |  | — |
At end of year |  |  | 125,000 |  |  |  | — |  |  |  | 79,523 |  |  |  | 204,523 |

Page 7

|  | STATEMENTS OF CASH FLOWS TOKIO MILLENNIUM RE (UK) LIMITED Year Ended 31 December 2018

|  | 2018 £000 |  |  | 2017 £000 |
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |  |  |
Operating profit and profit on ordinary activities before tax |  |  | 2,638 |  |  |  | 8,069 |
Adjustments for: |  |  |  |  |  |  |  |
Depreciation of property and equipment |  |  | 37 |  |  |  | 148 |
Amortisation of intangible assets |  |  | — |  |  |  | 3 |
Investment income |  |  | (6,551 | ) |  |  | (6,083 | )
Realised loss on investments |  |  | 3,880 |  |  |  | 3,130 |
Unrealised loss on investments |  |  | 671 |  |  |  | 737 |
Foreign exchange gains on cash and cash equivalents |  |  | (502 | ) |  |  | (419 | )
Revaluation gain on disposal of subsidiary |  |  | — |  |  |  | (608 | )
Other foreign exchange gains |  |  | (216 | ) |  |  | (62 | )
Change in operational assets and liabilities |  |  |  |  |  |  |  |
Debtors arising from operations |  |  | 7,184 |  |  |  | 9,157 |
Deposits with ceding undertakings |  |  | 167 |  |  |  | 566 |
Provision for unearned premiums |  |  | 287 |  |  |  | 345 |
Claims outstanding from reinsurers |  |  | (256 | ) |  |  | 4,414 |
Deferred acquisition costs |  |  | 507 |  |  |  | 1,936 |
Claims outstanding |  |  | (39,649 | ) |  |  | (64,977 | )
Creditors arising from operations |  |  | 3,961 |  |  |  | 1,974 |
Provision for unearned premium |  |  | (1,838 | ) |  |  | (8,700 | )
Reinsurers’ share of deferred acquisition costs |  |  | (19 | ) |  |  | (40 | )
Other assets and liabilities |  |  | (2,352 | ) |  |  | (1,778 | )
CASH USED IN OPERATING ACTIVITIES |  |  | (32,051 | ) |  |  | (52,188 | )
Income taxes refunded/(paid) |  |  | 1,628 |  |  |  | (404 | )
NET CASH USED IN OPERATING ACTIVITIES |  |  | (30,423 | ) |  |  | (52,592 | )
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |  |  |
Investment income received |  |  | 7,000 |  |  |  | 5,566 |
Purchase of investments |  |  | (296,261 | ) |  |  | (489,391 | )
Proceeds on sales and maturities of investments |  |  | 319,362 |  |  |  | 474,178 |
Proceeds from sale of equity investment |  |  | — |  |  |  | 3,291 |
Purchase of property and equipment |  |  | — |  |  |  | (21 | )
Net cash (used in)/provided by investing activities |  |  | 30,101 |  |  |  | (6,377 | )
Net decrease in cash and cash equivalents |  |  | (322 | ) |  |  | (58,969 | )
Foreign exchange gains on cash and cash equivalents |  |  | 502 |  |  |  | 419 |
Cash and cash equivalents at beginning of year |  |  | 83,145 |  |  |  | 141,695 |
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR |  |  | 83,325 |  |  |  | 83,145 |
Cash and cash equivalents consists of: |  |  |  |  |  |  |  |
Cash at bank and in hand |  |  | 19,200 |  |  |  | 34,944 |
Short term deposits (included in current asset investments) |  |  | 64,125 |  |  |  | 48,201 |
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR |  |  | 83,325 |  |  |  | 83,145 |

Page 8

|  | STATEMENT OF ACCOUNTING POLICIES TOKIO MILLENNIUM RE (UK) LIMITED

STATEMENT OF ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) | Statement of compliance

The consolidated financial statements have been prepared in accordance with United Kingdom Accounting Standards, including Financial Reporting Standard 102, “The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland” (“FRS 102”), Financial Reporting Standard 103, “The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland for entities issuing insurance contracts” (“FRS 103”).

(b) | Basis of preparation

These consolidated financial statements are prepared on a going concern basis, under the historical cost convention, as modified by the recognition of certain assets and liabilities measured at fair value.

(c) | Going concern

Having assessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.

(d) | Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with FRS 102 requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The most significant estimate made by management is in relation to claims outstanding. Estimates in relation to claims incurred are discussed in statement of accounting policy (i) - claims incurred and note 1 (c) - Underwriting Risk-reserve. Also refer to Note 6 (a) - Technical Provisions, claims outstanding.

(e) | Basis of accounting for underwriting activities

The results are determined on an annual basis whereby the incurred cost of claims, commissions and related expenses are charged against the earned proportion of premiums, net of reinsurance, as described below.

(f) | Written, earned and unearned premiums

Premiums written

Premiums written are recognised within the Statement of Comprehensive Income—Technical Account, with the gross and ceded amounts disclosed separately. Premiums written are stated gross of acquisition costs payable to intermediaries, but net of any premium levies or indirect taxes.

Premiums written relate to business incepted during the financial period, together with any differences between booked premiums and those previously accrued on contracts which incepted in prior financial periods.

Page 9

|  | STATEMENT OF ACCOUNTING POLICIES TOKIO MILLENNIUM RE (UK) LIMITED

STATEMENT OF ACCOUNTING POLICIES (continued)

Premium is initially recognised based on estimates of ultimate premiums. These estimates are judgemental and could result in misstatements of premium recorded in the financial statements. Adjustments to the amounts of premium are reflected in the consolidated financial statements for the period in which the adjustments are made. The methods used, and the estimates made, are reviewed regularly.

Earned premiums

Premiums written are earned on a time-apportionment basis to reflect the risk profile of each contract written.

Unearned premium reserves (“UPR”)

Premiums written not earned, are deferred within the Statement of Financial Position as unearned premium reserves (“UPR”). UPR are retranslated at closing rate and will be recognised as earned premiums in the Statement of Comprehensive Income - Technical Account in future financial periods’.

(g) | Claims incurred

Claims incurred are recognised within the Statement of Comprehensive Income - Technical Account, with the gross and ceded amounts disclosed separately. Claims incurred comprise:

| • |  | Claims paid during the financial period;

| • |  | Movements in claim provisions during the financial period;

| • |  | Related internal and external claims handling costs attributable to the above; and

| • |  | Where applicable, deductions for salvage and other recoveries.

Claims provisions and related reinsurance recoveries

Claims provisions within the Statement of Financial Position comprise the following:

| • |  | Estimated costs of claims notified but not yet settled at the financial period end (“outstandings”);

| • |  | Incurred but not reported claims at the financial period end (“IBNRs”);

| • |  | Related internal and external claims handling costs attributable to the above; and

| • |  | Salvage and subrogation deductions, plus other recoveries where applicable.

Claims provisions are estimated at each financial period end based on best available information. The Company takes all reasonable steps to ensure that it has appropriate information regarding its estimated claim exposures and these are set so that no adverse run-off deviation is envisaged. Given the uncertainties in establishing claims provisions, it is likely that the final liability will prove different from the original estimates established. Where such uncertainty is deemed considerable, a degree of caution is exercised in setting claims provisions.

Notified outstanding claims

In estimating outstanding claims within the Statement of Financial Position, the Company considers the claim circumstances as reported, including any information available from loss adjusters.

The Company’s gross outstanding claim estimates of large losses are based on best estimates of claims given the currently available information from: industry assessments of exposures; preliminary claims information obtained from policyholders, cedants and brokers to-date; and a review of in-force contracts. Actual gross losses from these events may vary materially from initial estimates due to the inherent uncertainties in making such determinations.

Incurred but not reported (“IBNR”) claims

The estimation of IBNR claims within the Statement of Financial Position is generally subject to a greater degree of uncertainty than the estimation of notified outstanding claims as less information is available. IBNR claims may often not be apparent to the insured until many years have passed following the event which trigger such claims. Business classes where the proportion of IBNR claims are high in relation to total claims provisions will typically display greater variations between initial estimates and the final outcomes because of greater difficulties estimating these. Business classes where claims are typically reported relatively quickly after the claim event tend to display lower levels of volatility.

In calculating IBNR claims, the Company applies the three reserving methods of a priori loss ratio, link ratio and Bornhuetter Ferguson. The Company then selects the most appropriate method based on information derived by underwriters and actuaries during the initial pricing of the business, supplemented by industry data where appropriate.

These methods consider, among other things, premium rate changes, claims inflation and changes in terms and conditions that have been observed in the market.

Page 10

|  | STATEMENT OF ACCOUNTING POLICIES TOKIO MILLENNIUM RE (UK) LIMITED

STATEMENT OF ACCOUNTING POLICIES (continued)

(h) | Claims incurred (continued)

The IBNR for each class of business is set to represent the best estimate of future claims with appropriate allowance for all risks faced. There is no longer a margin included in the IBNR. The IBNR in previous years has included a margin to take into account uncertainties in its estimation that arise from the fact that the claims experience is underdeveloped and that industry benchmark data is at times used in the reserving methodologies. The level of this margin has generally been decreasing each year as these uncertainties have reduced.

Assumed treaty contracts

These contracts currently comprise a mixed portfolio of Property, Liability, Accident/Health, Motor, Financial, Marine, Transport and Aggregate lines. The majority are short-to-medium tail in nature and there is generally not expected to be a significant delay between the occurrence of the claim and the claim being reported to the Company. Certain contracts have exposure to periodic payment orders and these are longer tail in nature where the claim payments are structured as annuities over an extended time horizon.

Direct contracts, assumed facultative contracts

These contracts comprise principally Property and Engineering lines. These are short-to-medium tail in nature and there is generally not expected to be a significant delay between the occurrence of the claim and the claim being reported to the Company.

Reinsurance recoveries

For ceded outstanding claims within the Statement of Financial Position, a separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provision.

For ceded IBNR claims within the Statement of Financial Position, these are assumed to be consistent with the historical pattern of recoveries, and adjusted to reflect changes in the Company’s reinsurance programme over time.

An assessment is also made of their recoverability having regard to market data on the financial strength of the underlying reinsurers and their associated default probabilities.

(i) | Unexpired risk provisions (“URP”)

Unexpired risk provisions (“URP”) are established within the Statement of Financial Position for any deficiencies arising when unearned premium reserves (“UPR”), net of associated deferred acquisition costs (“DAC”) are insufficient to meet expected claims and expenses after taking into account future investment return arising from investments supporting the URP and UPR. The expected claims are calculated based on information available at the Statement of Financial Position date.

Unexpired risk surpluses and deficits are offset where business classes are managed together and a provision is made if an aggregate deficit arises.

(j) | Acquisition costs

Acquisition costs

Acquisition costs within the Statement of Comprehensive Income-Technical Account represent both external commissions and internal expenses associated with acquiring insurance contracts written during the financial period. Acquisition costs are recognised in the financial period in which the related premiums are earned, with the gross and ceded amounts disclosed separately.

Deferred acquisition costs (“DAC”)

Acquisition costs are deferred over the period in which related premiums are earned and are recognised within the Statement of Financial Position as deferred acquisition costs (“DAC”). DAC are retranslated at closing rate and will be charged in future financial periods’ Statement of Comprehensive Income - Technical Account.

Page 11

|  | STATEMENT OF ACCOUNTING POLICIES TOKIO MILLENNIUM RE (UK) LIMITED

STATEMENT OF ACCOUNTING POLICIES (continued)

(k) | Financial instruments

The Company has chosen to adopt FRS 102 section 11 in respect of financial instruments.

Financial assets

Basic financial assets, including trade and other receivables, cash and bank balances, bonds and similar debt instruments are initially recognised at transaction price. Upon their initial recognition, debt instruments are designated by the entity as fair value through profit or loss, and are subsequently measured at fair value which is the current bid market price. Any changes in fair value are recognised in the Statement of Comprehensive Income - Non Technical Account.

Financial assets are derecognised when: (a) the contractual rights to the cash flows from the asset expire or are settled; or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party; or (c) control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions.

Financial liabilities

Basic financial liabilities, including trade and other payables are initially recognised at transaction price and are subsequently stated at amortised cost. Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised at the transaction price when recorded.

Offsetting

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is an enforceable right to set off the recognised amounts, and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

(I) | Investment return

Investment return is recognised within the Statement of Comprehensive Income and comprises:

| • |  | Investment income earned during the financial period;

| • |  | Investment expenses, charges or interest incurred during the financial period;

| • |  | Movements in unrealised market value gains/losses during the financial period; and

| • |  | Realised investment gains/losses arising from the sales and maturities of investments during the financial period.

Investment income

Investment income comprises:

| • |  | Interest on bank balances, which are accounted for on an accruals basis;

| • |  | Coupons on bonds, which are accounted for on an accruals basis; and

| • |  | Returns on money market funds, which are accounted for on an accruals basis.

Investment expenses, charges or interest

These are recognised on an accruals basis.

Movements in unrealised gains/(losses)

Unrealised gains/(losses) on investments arising during the financial period represent the difference between:

| • |  | The market value of investments at the Statement of Financial Position date, and their acquired cost if purchased during the financial period; or

| • |  | The market value of investments at the Statement of Financial Position date, and their market value at the last Statement of Financial Position date if purchased in previous financial periods.

Realised gains/(losses)

These represent the difference between the net sales proceeds and acquired cost. Any unrealised gains/(losses) previously recognised will be reclassified as realised gains/(losses) upon the sale or maturity of investments.

(m) | Other income

Fee income arises from:

| • |  | Income receivable by the Company from group undertakings for risk consultancy services; and

| • |  | Income receivable by the Company from its sublease on an office premise.

Page 12

|  | STATEMENT OF ACCOUNTING POLICIES TOKIO MILLENNIUM RE (UK) LIMITED

STATEMENT OF ACCOUNTING POLICIES (continued)

(n) | Foreign currency translations and settlements

The Company’s reporting and functional currency is GBP.

The Company operates in the three transactional currencies of GBP/EUR/USD. All non-GBP/EUR/USD transactions are translated into GBP/EUR/USD at the actual rates prevailing on the respective dates of the transactions. At each period end:

| • |  | Foreign currency monetary items, including the Statement of Comprehensive Income, are translated at closing rates. Individual line items in the Statement of Comprehensive Income are translated at the average rate, with the retranslation into closing rates taken to exchange gains and losses.

| • |  | Foreign currency non-monetary items measured at historical cost are translated using the exchange rate prevailing at the date of the transaction.

| • |  | Foreign currency non-monetary items measured at fair value are translated using the exchange rate prevailing at the date fair value was determined.

All foreign exchange gains and losses are recognised in the Statement of Comprehensive—Non Technical Account. These arise from:

| • |  | Settlements of non-GBP/EUR/USD foreign currency transactions.

| • |  | Retranslations of monetary items at period end exchange rates.

| • |  | Differences on non-monetary items between theoretical period end exchange rate values, and the established historic or fair values recognised at various exchange rates.

(o) | Operating leases

Operating lease rentals are charged to the Statement of Comprehensive Income-Non Technical Account evenly over the period of the lease.

(p) | Current and deferred taxation

Current tax

Current tax is recognised in the Statement of Comprehensive Income-Non Technical Account and reflects:

| • |  | Estimated tax charges/credits associated with the current financial period’s taxable profits/losses; and

| • |  | Changes in previously estimated tax charges/credits associated with previous financial periods’ taxable profits/losses.

Deferred tax

Deferred tax assets/liabilities within the Statement of Financial Position arise from differences in timing between the recognition of taxable profits/losses in the consolidated financial statements, versus their recognition in the tax computation.

Provision is made for all material timing differences, including revaluations of investment gains/losses recognised within the Statement of Comprehensive Income—Non Technical Account. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the period end and that are expected to apply to the reversal of the timing difference. This provision is not discounted.

Deferred tax assets are recognised to the extent that it is regarded more likely than not that these will be recovered.

(q) | Pension costs

The Company only operates a defined contribution pension scheme—a plan under which the Company pays fixed contributions into a separate entity. Once the contributions have been paid, the Company has no further payment obligations. Contributions to the scheme are charged to the Statement of Comprehensive Income—Technical Account and represent the amounts payable during the current financial period. Contributions are accumulated and invested by an independent scheme manager across a portfolio of assets which are held separately from the Company’s assets.

(r) | Tangible assets

Tangible assets are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes the original purchase price, costs directly attributable to bringing the asset to its working condition for its intended use, dismantling and restoration costs and borrowing costs capitalised. The costs of tangible assets are capitalised on the Statement of Financial Position within the following categories, and depreciated on a straight line basis over the estimated useful lives stipulated below:

| • |  | Leasehold improvements 3 to 10 years

| • |  | Furniture/fixtures/fittings 2 years

| • |  | Computer hardware 2 years

| • |  | Office equipment 2 years

The assets’ residual values and useful lives are reviewed, and adjusted, if appropriate, at the end of each reporting period. The effect of any change is accounted for prospectively.

(s) | Distributions to equity shareholders

Dividends and other distributions to Company’s shareholders are recognised as a liability in the financial statements in the period in which the dividends and other distributions are approved by the Company’s shareholders. These amounts are recognised in the Statement of Changes in Equity.

(t) | Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts, when applicable, are shown within borrowings in current liabilities.

Page 13

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT

The Company, through its risk management function and the Risk Committee, seeks to identify all material risks inherent in its business including emerging risks, understand the manifestations of each risk, then assess, control, mitigate and manage these risks appropriately.

The objectives of the Company’s risk management function are to ensure that:

| • |  | all material risks are proactively identified;

| • |  | the probability and impact of each risk are quantified on a pre-mitigation and post-mitigation basis;

| • |  | the potential to cause losses or generate profits is understood and assessed;

| • |  | appropriate action is taken to manage the assumption of each risk based on that assessment and the Company’s stated risk appetite;

| • |  | an appropriate level of capital is held to cover financial and non-financial risks from all sources; and

| • |  | following a severe catastrophic event(s), appropriate capital action can be executed to remain solvent and meet its obligations under reinsurance contracts.

The oversight of the Company’s risk management function falls within the remit of the Risk Committee, a subcommittee of the Executive Committee which reports to the Board of Directors. The Risk Committee is charged with setting the orientation of the Company’s business. It pays particular attention to business strategy, capital allocation, risk control framework and ensures these are implemented.

The Company is exposed to risks from several sources. These fall into the broad categories of: underwriting risk (comprising premium, catastrophe and reserve); financial risk (comprising interest rate, foreign exchange, credit and liquidity); operational risk; and strategic risk.

Underwriting risk

Underwriting risk consists of premium risk, catastrophe risk and reserve risk.

Underwriting risk arise either from the acceptance of risks that do not comply with the Company’s underwriting guidelines and corporate strategy, or from the acceptance of risks that result in losses and expenses greater than it had anticipated at the time of underwriting.

As a reinsurance Company, TMRUK is in the business of taking underwriting risk and therefore has a high appetite for underwriting risk. The Company’s risk limits are defined in the Company’s risk appetite and risk tolerance limits for all underwriting risks.

The Company has underwriting guidelines in place that clearly define each underwriter’s authority, permitted territorial scope, risks to be written, risks to be avoided, acceptance limits, maximum policy period, maximum net retention, and outward reinsurance.

As part of the Company’s risk control strategy and governance, all contracts must be reviewed and approved by the Executive Committee, a sub-committee of the Audit Committee, before these can be bound.

The Company employs experienced catastrophe analysts and modellers, as well as experienced and credentialed actuaries, to perform pricing analyses ensuring each risk is adequately priced.

Financial risk

Financial risk refers to the risk of financial loss due to a change in the value of the Company’s assets, or a change of market risk factors that affect the value of such assets. The Company has identified the following as its main sources of financial risks: interest rate risk, foreign exchange risk, credit risk and liquidity risk.

Operational risk

Operational risk refers to the risk of financial or other loss, or potential damage to the Company’s reputation resulting from inadequate or failed internal processes, people and systems, or from external events.

Strategic risk

Strategic risk is the risk to earnings or capital arising from adverse business decisions or improper implementation of those decisions, or inability to act in response to business opportunities, or to adapt to changes in its operating environment.

Page 14

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(a) | Underwriting risk - premium

Premium risk is the risk that the premium to be earned over the next 12 month period from the in-force, new or renewal reinsurance contracts is insufficient to cover the claim costs, claim adjustment expenses as well as the acquisition costs to be incurred by those contracts over the same period.

Gross written premium of £(8,216) thousand (2017: £(5,135)) thousand relates to revisions in premium estimates primarily on Property and Marine.

Details of gross premiums written by geographical area of risk insured are set out below.

|  | 2018 |  |  | 2017 |
|  | Gross written premiums £000 |  |  | % |  |  | Gross written premiums £000 |  |  | % |
Geographic area of risk insured |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Worldwide |  |  | (4,257 | ) |  |  | 53 | % |  |  | (2,987 | ) |  |  | 58 | %
Asia and Australia |  |  | (2,170 | ) |  |  | 27 | % |  |  | (2,312 | ) |  |  | 45 | %
Africa and Middle East |  |  | (685 | ) |  |  | 8 | % |  |  | (254 | ) |  |  | 5 | %
North, Central and South America |  |  | (736 | ) |  |  | 9 | % |  |  | (114 | ) |  |  | 2 | %
United Kingdom |  |  | (435 | ) |  |  | 4 | % |  |  | (13 | ) |  |  | 1 | %
Europe |  |  | 67 |  |  |  | 1 | % |  |  | 545 |  |  |  | (11 | )%
|  |  | (8,216 | ) |  |  | 100 | % |  |  | (5,135 | ) |  |  | 100 | %

Details of gross premiums written by line of business are provided below.

|  | 2018 |  |  | 2017 |
|  | Gross written premiums £000 |  |  | % |  |  | Gross written premiums £000 |  |  | % |
Line of business |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Property |  |  | (4,048 | ) |  |  | 49 | % |  |  | (3,466 | ) |  |  | 67 | %
Financial Lines |  |  | (101 | ) |  |  | 1 | % |  |  | (3,075 | ) |  |  | 61 | %
Transport |  |  | (583 | ) |  |  | 7 | % |  |  | (354 | ) |  |  | 7 | %
Marine |  |  | (2,017 | ) |  |  | 25 | % |  |  | (305 | ) |  |  | 6 | %
Accident and Health |  |  | (39 | ) |  |  | 0 | % |  |  | (25 | ) |  |  | 0 | %
Aggregate Cover |  |  | (92 | ) |  |  | 1 | % |  |  | 9 |  |  |  | (0 | )%
Motor |  |  | (305 | ) |  |  | 4 | % |  |  | 388 |  |  |  | (8 | )%
Liability |  |  | (1,031 | ) |  |  | 13 | % |  |  | 1,693 |  |  |  | (33 | )%
|  |  | (8,216 | ) |  |  | 100 | % |  |  | (5,135 | ) |  |  | 100 | %

(b) | Underwriting risk - catastrophe

Catastrophe risk is the risk that the premium to be earned over the next 12 month period from the catastrophe exposed reinsurance contracts (in-force, new or renewal) is insufficient to cover potential claim costs, claim adjustment expenses as well as the acquisition costs associated with those contracts that may originate from extreme or exceptional catastrophic events over the same period, such as but not limited to hurricanes, earthquakes, windstorms, landslides, and terrorist attacks.

Catastrophe risk is classified as a separate and distinct class of underwriting risk mainly due to its low frequency and high severity characteristics, its potential to affect numerous contracts simultaneously, and inflict significant erosion of the Company’s capital.

The Company has made a series of strategic moves to diversify, spread and dilute its catastrophic exposures as well as optimise its underwriting portfolio through geographical diversification and by spreading risks across multiple lines of businesses.

Page 15

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(c) | Underwriting risk - reserve

Reserve risk is the risk that the best (point) estimate of unpaid loss and loss adjustment expense reserves (collectively “claims reserves”) are inadequate to cover all future payments for the settlement of claims from all prior accident years occurring at or before the valuation date.

Reserve risk is distinct from premium risk and is related to premium exposures that have already been earned, as well as claims outstanding.

A summary of changes in claims reserves is presented in Note 6. This comprises outstanding claims reserves, claims incurred but not reported reserves, unallocated loss adjustment reserves and any reinsurers’ share thereof. There was no change to the Company’s reserving methodology during the year.

To manage reserving risk, the Company’s actuarial team uses a range of recognised actuarial techniques to project gross premiums written to ultimate, monitor claims development patterns, and stress test ultimate insurance liabilities. An independent firm of actuaries also performs an annual reprojection of the ultimate insurance liabilities.

A full analysis of claims reserves is performed on a quarterly basis. The analysis is reviewed by and discussed with underwriters, actuaries, claims, finance and senior management prior to submission to the Reserve Committee, a sub-committee of the Executive Committee. The Reserve Committee’s remit is to review the sufficiency of the estimated claims reserves and to critically assess the claims reserving practices of the Company.

The claims reserves established can be more or less than adequate to meet individual claims arising. The level of uncertainty varies significantly from class to class but can arise from inadequate reserves for known large losses and catastrophes, or from inadequate provision for unknown losses. The Company believes that the claims reserves established are adequate, however a 1% improvement/deterioration in the total estimated losses would have an impact on profit before tax of £1,800 thousand gain/loss (2017: £2,197 thousand).

Concentrations of claims reserves by line of business are provided below.

|  | 2018 |  |  | 2017 |
Gross claims reserves |  | Claims reserves £000 |  |  | % |  |  | Claims reserves £000 |  |  | % |
Line of business |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Motor |  |  | 97,201 |  |  |  | 53 | % |  |  | 64,106 |  |  |  | 42 | %
Liability |  |  | 36,053 |  |  |  | 20 | % |  |  | 39,693 |  |  |  | 26 | %
Property |  |  | 19,113 |  |  |  | 11 | % |  |  | 22,213 |  |  |  | 15 | %
Financial Lines |  |  | 17,156 |  |  |  | 10 | % |  |  | 14,644 |  |  |  | 10 | %
Marine |  |  | 7,002 |  |  |  | 4 | % |  |  | 7,672 |  |  |  | 5 | %
Transport |  |  | 2,195 |  |  |  | 1 | % |  |  | 2,484 |  |  |  | 2 | %
Aggregate Cover |  |  | 810 |  |  |  | 1 | % |  |  | 1,015 |  |  |  | 2 | %
Accident and Health |  |  | 486 |  |  |  | 0 | % |  |  | 377 |  |  |  | 0 | %
|  |  | 180,016 |  |  |  | 100 | % |  |  | 152,204 |  |  |  | 100 | %

Lump sum payments in settlement of bodily injury claims that are decided by the UK courts are calculated in accordance with the Ogden Tables and discount rate. The Ogden discount rate is set by the Lord Chancellor and is applied when calculating the present value of future care costs and loss of earnings for claims settlement purposes. Following the announcement by the Ministry of Justice on 27 February 2017 to decrease the Ogden rate from 2.75% to -0.75%, balance sheet reserves were calculated using a rate of -0.75%. On 20 March 2018, the Government announced that it will introduce the Civil Liability Bill (the Bill), which includes provisions to amend the discount rate. In December 2018 the Bill became an Act of Parliament, meaning that a new Ogden discount rate will be set by the Lord Chancellor in 2019. Based upon this, there is certainty that there will be a change in the Ogden rate in 2019, but uncertainty remains around the amount and timing of the final rate. At December 2018, the claim reserves have been calculated using a discount rate of 0.00% (2017: - 0.75%) resulting in a release of £10.9 million, though the rate to be announced by the Lord Chancellor later this year may result in a different discount rate.

Page 16

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(c) | Underwriting risk - reserve (continued)

The table below summarises the development of gross ultimate cumulative claim estimates at the end of each financial year, illustrating how amounts estimated have changed from the first estimate made.

2018 |  | Underwriting years |
Gross ultimate liability estimates |  | 2005 |  |  | 2006 |  |  | 2007 |  |  | 2008 |  |  | 2009 |  |  | 2010 |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 17,474 |  |  |  | 11,230 |  |  |  | 19,639 |  |  |  | 43,205 |  |  |  | 29,520 |  |  |  | 44,369 |
End of financial year 2 |  |  | 25,287 |  |  |  | 27,944 |  |  |  | 54,944 |  |  |  | 58,392 |  |  |  | 53,457 |  |  |  | 61,896 |
End of financial year 3 |  |  | 22,947 |  |  |  | 40,886 |  |  |  | 54,431 |  |  |  | 61,402 |  |  |  | 52,591 |  |  |  | 53,030 |
End of financial year 4 |  |  | 24,896 |  |  |  | 35,449 |  |  |  | 53,777 |  |  |  | 64,093 |  |  |  | 50,098 |  |  |  | 50,859 |
End of financial year 5 |  |  | 23,325 |  |  |  | 35,595 |  |  |  | 60,522 |  |  |  | 69,561 |  |  |  | 51,286 |  |  |  | 50,525 |
End of financial year 6 |  |  | 22,505 |  |  |  | 31,542 |  |  |  | 64,342 |  |  |  | 68,261 |  |  |  | 50,873 |  |  |  | 50,385 |
End of financial year 7 |  |  | 22,317 |  |  |  | 32,675 |  |  |  | 65,825 |  |  |  | 65,796 |  |  |  | 50,763 |  |  |  | 50,046 |
End of financial year 8 |  |  | 22,497 |  |  |  | 32,163 |  |  |  | 61,899 |  |  |  | 63,182 |  |  |  | 52,632 |  |  |  | 47,510 |
End of financial year 9 |  |  | 22,674 |  |  |  | 30,774 |  |  |  | 60,106 |  |  |  | 64,609 |  |  |  | 51,597 |  |  |  | 47,401 |
End of financial year 10 |  |  | 22,584 |  |  |  | 30,556 |  |  |  | 60,519 |  |  |  | 65,011 |  |  |  | 52,577 |  |  |  |  |
End of financial year 11 |  |  | 22,534 |  |  |  | 30,501 |  |  |  | 59,525 |  |  |  | 64,992 |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  | 22,158 |  |  |  | 30,398 |  |  |  | 59,591 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  | 22,537 |  |  |  | 30,813 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 14 |  |  | 22,443 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 22,443 |  |  |  | 30,813 |  |  |  | 59,591 |  |  |  | 64,992 |  |  |  | 52,577 |  |  |  | 47,401 |
Paid to-date |  |  | (22,056 | ) |  |  | (29,837 | ) |  |  | (57,552 | ) |  |  | (61,721 | ) |  |  | (47,592 | ) |  |  | (44,749 | )
Unpaid liability (excluding ULAE) |  |  | 387 |  |  |  | 976 |  |  |  | 2,039 |  |  |  | 3,271 |  |  |  | 4,985 |  |  |  | 2,652 |
ULAE liability |  |  | 8 |  |  |  | 18 |  |  |  | 38 |  |  |  | 60 |  |  |  | 92 |  |  |  | 49 |
Unpaid liability (including |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ULAE) at 31 December 2018 |  |  | 395 |  |  |  | 994 |  |  |  | 2,077 |  |  |  | 3,331 |  |  |  | 5,077 |  |  |  | 2,701 |

2018 |  | Underwriting years |
Gross ultimate liability estimates |  | 2011 |  |  | 2012 |  |  | 2013 |  |  | 2014 |  |  | 2015 |  |  | Total |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 35,481 |  |  |  | 35,314 |  |  |  | 40,679 |  |  |  | 58,555 |  |  |  | 76,746 |  |  |  |  |
End of financial year 2 |  |  | 52,632 |  |  |  | 53,808 |  |  |  | 80,172 |  |  |  | 109,511 |  |  |  | 132,391 |  |  |  |  |
End of financial year 3 |  |  | 45,713 |  |  |  | 51,991 |  |  |  | 86,084 |  |  |  | 120,341 |  |  |  | 129,323 |  |  |  |  |
End of financial year 4 |  |  | 43,929 |  |  |  | 52,238 |  |  |  | 96,091 |  |  |  | 122,936 |  |  |  | 131,572 |  |  |  |  |
End of financial year 5 |  |  | 43,911 |  |  |  | 65,248 |  |  |  | 96,227 |  |  |  | 119,993 |  |  |  |  |  |  |  |  |
End of financial year 6 |  |  | 44,158 |  |  |  | 60,954 |  |  |  | 90,958 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 7 |  |  | 43,478 |  |  |  | 60,789 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 8 |  |  | 41,889 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 9 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 10 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 11 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 14 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 41,889 |  |  |  | 60,789 |  |  |  | 90,958 |  |  |  | 119,993 |  |  |  | 131,572 |  |  |  | 723,018 |
Paid to-date |  |  | (41,452 | ) |  |  | (45,796 | ) |  |  | (58,055 | ) |  |  | (65,610 | ) |  |  | (71,433 | ) |  |  | (545,853 | )
Unpaid liability (excluding ULAE) |  |  | 437 |  |  |  | 14,993 |  |  |  | 32,903 |  |  |  | 54,383 |  |  |  | 60,139 |  |  |  | 177,165 |
ULAE liability |  |  | 8 |  |  |  | 221 |  |  |  | 487 |  |  |  | 875 |  |  |  | 995 |  |  |  | 2,851 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2018 |  |  | 445 |  |  |  | 15,214 |  |  |  | 33,390 |  |  |  | 55,258 |  |  |  | 61,134 |  |  |  | 180,016 |

Page 17

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(c) | Underwriting risk - reserve (continued)

The table below summarises the development of net ultimate cumulative claim estimates at the end of each financial year, illustrating how amounts estimated have changed from the first estimate made.

2018 |  | Underwriting years |
Net ultimate liability estimates |  | 2005 |  |  | 2006 |  |  | 2007 |  |  | 2008 |  |  | 2009 |  |  | 2010 |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 12,511 |  |  |  | 11,230 |  |  |  | 19,639 |  |  |  | 43,205 |  |  |  | 29,520 |  |  |  | 44,369 |
End of financial year 2 |  |  | 20,603 |  |  |  | 27,944 |  |  |  | 54,944 |  |  |  | 58,392 |  |  |  | 53,457 |  |  |  | 61,896 |
End of financial year 3 |  |  | 19,815 |  |  |  | 40,886 |  |  |  | 54,431 |  |  |  | 61,402 |  |  |  | 52,591 |  |  |  | 53,030 |
End of financial year 4 |  |  | 19,079 |  |  |  | 35,449 |  |  |  | 53,777 |  |  |  | 64,093 |  |  |  | 50,098 |  |  |  | 50,859 |
End of financial year 5 |  |  | 18,866 |  |  |  | 35,595 |  |  |  | 60,522 |  |  |  | 69,561 |  |  |  | 51,286 |  |  |  | 50,525 |
End of financial year 6 |  |  | 18,046 |  |  |  | 31,542 |  |  |  | 64,342 |  |  |  | 68,261 |  |  |  | 50,873 |  |  |  | 50,385 |
End of financial year 7 |  |  | 17,858 |  |  |  | 32,675 |  |  |  | 65,825 |  |  |  | 65,796 |  |  |  | 50,763 |  |  |  | 50,046 |
End of financial year 8 |  |  | 18,038 |  |  |  | 32,163 |  |  |  | 61,899 |  |  |  | 63,182 |  |  |  | 52,632 |  |  |  | 47,510 |
End of financial year 9 |  |  | 18,215 |  |  |  | 30,774 |  |  |  | 60,106 |  |  |  | 64,609 |  |  |  | 51,597 |  |  |  | 47,401 |
End of financial year 10 |  |  | 18,125 |  |  |  | 30,556 |  |  |  | 60,519 |  |  |  | 65,011 |  |  |  | 52,577 |  |  |  |  |
End of financial year 11 |  |  | 18,075 |  |  |  | 30,501 |  |  |  | 59,525 |  |  |  | 64,992 |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  | 17,699 |  |  |  | 30,398 |  |  |  | 59,591 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  | 18,078 |  |  |  | 30,813 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 14 |  |  | 17,983 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 17,983 |  |  |  | 30,813 |  |  |  | 59,591 |  |  |  | 64,992 |  |  |  | 52,577 |  |  |  | 47,401 |
Paid to-date |  |  | (17,596 | ) |  |  | (29,837 | ) |  |  | (57,552 | ) |  |  | (61,721 | ) |  |  | (47,592 | ) |  |  | (44,749 | )
Unpaid liability (excluding ULAE) |  |  | 387 |  |  |  | 976 |  |  |  | 2,039 |  |  |  | 3,271 |  |  |  | 4,985 |  |  |  | 2,652 |
ULAE liability |  |  | 8 |  |  |  | 18 |  |  |  | 38 |  |  |  | 60 |  |  |  | 92 |  |  |  | 49 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2018 |  |  | 395 |  |  |  | 994 |  |  |  | 2,077 |  |  |  | 3,331 |  |  |  | 5,077 |  |  |  | 2,701 |

2018 |  | Underwriting years |
Net ultimate liability estimates |  | 2011 |  |  | 2012 |  |  | 2013 |  |  | 2014 |  |  | 2015 |  |  | Total |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 35,122 |  |  |  | 26,435 |  |  |  | 39,427 |  |  |  | 57,534 |  |  |  | 76,746 |  |  |  |  |
End of financial year 2 |  |  | 52,632 |  |  |  | 44,156 |  |  |  | 78,742 |  |  |  | 105,555 |  |  |  | 132,391 |  |  |  |  |
End of financial year 3 |  |  | 45,713 |  |  |  | 41,548 |  |  |  | 84,763 |  |  |  | 117,865 |  |  |  | 129,323 |  |  |  |  |
End of financial year 4 |  |  | 43,929 |  |  |  | 42,996 |  |  |  | 94,522 |  |  |  | 119,024 |  |  |  | 131,572 |  |  |  |  |
End of financial year 5 |  |  | 43,911 |  |  |  | 55,444 |  |  |  | 96,227 |  |  |  | 116,080 |  |  |  |  |  |  |  |  |
End of financial year 6 |  |  | 44,158 |  |  |  | 51,887 |  |  |  | 90,958 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 7 |  |  | 43,478 |  |  |  | 51,178 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 8 |  |  | 41,889 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 9 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 10 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 11 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 14 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 41,889 |  |  |  | 51,178 |  |  |  | 90,958 |  |  |  | 116,080 |  |  |  | 131,572 |  |  |  | 705,034 |
Paid to-date |  |  | (41,452 | ) |  |  | (38,049 | ) |  |  | (58,055 | ) |  |  | (61,779 | ) |  |  | (71,435 | ) |  |  | (529,817 | )
Unpaid liability (excluding ULAE) |  |  | 437 |  |  |  | 13,129 |  |  |  | 32,903 |  |  |  | 54,301 |  |  |  | 60,137 |  |  |  | 175,217 |
ULAE liability |  |  | 8 |  |  |  | 221 |  |  |  | 487 |  |  |  | 875 |  |  |  | 995 |  |  |  | 2,851 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2018 |  |  | 445 |  |  |  | 13,350 |  |  |  | 33,390 |  |  |  | 55,176 |  |  |  | 61,132 |  |  |  | 178,068 |

Page 18

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(c) | Underwriting risk - reserve (continued)

The table below summarises the development of gross ultimate cumulative claim estimates at the end of each financial year, illustrating how amounts estimated have changed from the first estimate made.

2017 |  | Underwriting years |
Gross ultimate liability estimates |  | 2005 |  |  | 2006 |  |  | 2007 |  |  | 2008 |  |  | 2009 |  |  | 2010 |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 17,474 |  |  |  | 11,230 |  |  |  | 19,639 |  |  |  | 43,205 |  |  |  | 29,520 |  |  |  | 44,369 |
End of financial year 2 |  |  | 25,287 |  |  |  | 27,944 |  |  |  | 54,944 |  |  |  | 58,392 |  |  |  | 53,457 |  |  |  | 61,896 |
End of financial year 3 |  |  | 22,947 |  |  |  | 40,886 |  |  |  | 54,431 |  |  |  | 61,402 |  |  |  | 52,591 |  |  |  | 53,030 |
End of financial year 4 |  |  | 24,896 |  |  |  | 35,449 |  |  |  | 53,777 |  |  |  | 64,093 |  |  |  | 50,098 |  |  |  | 50,859 |
End of financial year 5 |  |  | 23,325 |  |  |  | 35,595 |  |  |  | 60,522 |  |  |  | 69,561 |  |  |  | 51,286 |  |  |  | 50,525 |
End of financial year 6 |  |  | 22,505 |  |  |  | 31,542 |  |  |  | 64,342 |  |  |  | 68,261 |  |  |  | 50,873 |  |  |  | 50,385 |
End of financial year 7 |  |  | 22,317 |  |  |  | 32,675 |  |  |  | 65,825 |  |  |  | 65,796 |  |  |  | 50,763 |  |  |  | 50,046 |
End of financial year 8 |  |  | 22,497 |  |  |  | 32,163 |  |  |  | 61,899 |  |  |  | 63,182 |  |  |  | 52,632 |  |  |  | 47,510 |
End of financial year 9 |  |  | 22,674 |  |  |  | 30,774 |  |  |  | 60,106 |  |  |  | 64,609 |  |  |  | 51,597 |  |  |  |  |
End of financial year 10 |  |  | 22,584 |  |  |  | 30,556 |  |  |  | 60,519 |  |  |  | 65,011 |  |  |  |  |  |  |  |  |
End of financial year 11 |  |  | 22,534 |  |  |  | 30,501 |  |  |  | 59,525 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  | 22,158 |  |  |  | 30,398 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  | 22,537 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 22,537 |  |  |  | 30,398 |  |  |  | 59,525 |  |  |  | 65,011 |  |  |  | 51,597 |  |  |  | 47,510 |
Paid to-date |  |  | (21,945 | ) |  |  | (29,633 | ) |  |  | (57,447 | ) |  |  | (61,558 | ) |  |  | (47,541 | ) |  |  | (44,640 | )
Unpaid liability (excluding ULAE) |  |  | 592 |  |  |  | 765 |  |  |  | 2,078 |  |  |  | 3,453 |  |  |  | 4,056 |  |  |  | 2,870 |
ULAE liability |  |  | 11 |  |  |  | 14 |  |  |  | 38 |  |  |  | 64 |  |  |  | 75 |  |  |  | 53 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2017 |  |  | 603 |  |  |  | 779 |  |  |  | 2,116 |  |  |  | 3,517 |  |  |  | 4,131 |  |  |  | 2,923 |

2017 |  | Underwriting years |
Gross ultimate liability estimates |  | 2011 |  |  | 2012 |  |  | 2013 |  |  | 2014 |  |  | 2015 |  |  | Total |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 35,481 |  |  |  | 35,314 |  |  |  | 40,679 |  |  |  | 58,555 |  |  |  | 76,746 |  |  |  |  |
End of financial year 2 |  |  | 52,632 |  |  |  | 53,808 |  |  |  | 80,172 |  |  |  | 109,511 |  |  |  | 132,391 |  |  |  |  |
End of financial year 3 |  |  | 45,713 |  |  |  | 51,991 |  |  |  | 86,084 |  |  |  | 120,341 |  |  |  | 129,323 |  |  |  |  |
End of financial year 4 |  |  | 43,929 |  |  |  | 52,238 |  |  |  | 96,091 |  |  |  | 122,936 |  |  |  |  |  |  |  |  |
End of financial year 5 |  |  | 43,911 |  |  |  | 65,248 |  |  |  | 96,227 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 6 |  |  | 44,158 |  |  |  | 60,954 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 7 |  |  | 43,478 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 8 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 9 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 10 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 11 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 43,478 |  |  |  | 60,954 |  |  |  | 96,227 |  |  |  | 122,936 |  |  |  | 129,323 |  |  |  | 729,496 |
Paid to-date |  |  | (41,183 | ) |  |  | (42,804 | ) |  |  | (50,551 | ) |  |  | (57,702 | ) |  |  | (58,066 | ) |  |  | (513,070 | )
Unpaid liability (excluding ULAE) |  |  | 2,295 |  |  |  | 18,150 |  |  |  | 45,676 |  |  |  | 65,234 |  |  |  | 71,257 |  |  |  | 216,426 |
ULAE liability |  |  | 42 |  |  |  | 222 |  |  |  | 624 |  |  |  | 980 |  |  |  | 1,116 |  |  |  | 3,239 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2017 |  |  | 2,337 |  |  |  | 18,372 |  |  |  | 46,300 |  |  |  | 66,214 |  |  |  | 72,373 |  |  |  | 219,665 |

Page 19

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(c) | Underwriting risk - reserve (continued)

The table below summarises the development of net ultimate cumulative claim estimates at the end of each financial year, illustrating how amounts estimated have changed from the first estimate made.

2017 |  | Underwriting years |
Net ultimate liability estimates |  | 2005 |  |  | 2006 |  |  | 2007 |  |  | 2008 |  |  | 2009 |  |  | 2010 |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 12,511 |  |  |  | 11,230 |  |  |  | 19,639 |  |  |  | 43,205 |  |  |  | 29,520 |  |  |  | 44,369 |
End of financial year 2 |  |  | 20,603 |  |  |  | 27,944 |  |  |  | 54,944 |  |  |  | 58,392 |  |  |  | 53,457 |  |  |  | 61,896 |
End of financial year 3 |  |  | 19,815 |  |  |  | 40,886 |  |  |  | 54,431 |  |  |  | 61,402 |  |  |  | 52,591 |  |  |  | 53,030 |
End of financial year 4 |  |  | 19,079 |  |  |  | 35,449 |  |  |  | 53,777 |  |  |  | 64,093 |  |  |  | 50,098 |  |  |  | 50,859 |
End of financial year 5 |  |  | 18,866 |  |  |  | 35,595 |  |  |  | 60,522 |  |  |  | 69,561 |  |  |  | 51,286 |  |  |  | 50,525 |
End of financial year 6 |  |  | 18,046 |  |  |  | 31,542 |  |  |  | 64,342 |  |  |  | 68,261 |  |  |  | 50,873 |  |  |  | 50,385 |
End of financial year 7 |  |  | 17,858 |  |  |  | 32,675 |  |  |  | 65,825 |  |  |  | 65,796 |  |  |  | 50,763 |  |  |  | 50,046 |
End of financial year 8 |  |  | 18,038 |  |  |  | 32,163 |  |  |  | 61,899 |  |  |  | 63,182 |  |  |  | 52,632 |  |  |  | 47,510 |
End of financial year 9 |  |  | 18,215 |  |  |  | 30,774 |  |  |  | 60,106 |  |  |  | 64,609 |  |  |  | 51,597 |  |  |  |  |
End of financial year 10 |  |  | 18,125 |  |  |  | 30,556 |  |  |  | 60,519 |  |  |  | 65,011 |  |  |  |  |  |  |  |  |
End of financial year 11 |  |  | 18,075 |  |  |  | 30,501 |  |  |  | 59,525 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  | 17,699 |  |  |  | 30,398 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  | 18,078 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 18,078 |  |  |  | 30,398 |  |  |  | 59,525 |  |  |  | 65,011 |  |  |  | 51,597 |  |  |  | 47,510 |
Paid to-date |  |  | (17,486 | ) |  |  | (29,633 | ) |  |  | (57,447 | ) |  |  | (61,558 | ) |  |  | (47,541 | ) |  |  | (44,640 | )
Unpaid liability (excluding ULAE) |  |  | 592 |  |  |  | 765 |  |  |  | 2,078 |  |  |  | 3,453 |  |  |  | 4,056 |  |  |  | 2,870 |
ULAE liability |  |  | 11 |  |  |  | 14 |  |  |  | 38 |  |  |  | 64 |  |  |  | 75 |  |  |  | 53 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2017 |  |  | 603 |  |  |  | 779 |  |  |  | 2,116 |  |  |  | 3,517 |  |  |  | 4,131 |  |  |  | 2,923 |

2017 |  | Underwriting years |
Net ultimate liability estimates |  | 2011 |  |  | 2012 |  |  | 2013 |  |  | 2014 |  |  | 2015 |  |  | Total |
at end of financial years |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
End of financial year 1 |  |  | 35,122 |  |  |  | 26,435 |  |  |  | 39,427 |  |  |  | 57,534 |  |  |  | 76,746 |  |  |  |  |
End of financial year 2 |  |  | 52,632 |  |  |  | 44,156 |  |  |  | 78,742 |  |  |  | 105,555 |  |  |  | 132,391 |  |  |  |  |
End of financial year 3 |  |  | 45,713 |  |  |  | 41,548 |  |  |  | 84,763 |  |  |  | 117,865 |  |  |  | 129,323 |  |  |  |  |
End of financial year 4 |  |  | 43,929 |  |  |  | 42,996 |  |  |  | 94,522 |  |  |  | 119,024 |  |  |  |  |  |  |  |  |
End of financial year 5 |  |  | 43,911 |  |  |  | 55,444 |  |  |  | 96,227 |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 6 |  |  | 44,158 |  |  |  | 51,887 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 7 |  |  | 43,478 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 8 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 9 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 10 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 11 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 12 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End of financial year 13 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ultimate liability |  |  | 43,478 |  |  |  | 51,887 |  |  |  | 96,227 |  |  |  | 119,024 |  |  |  | 129,323 |  |  |  | 712,058 |
Paid to-date |  |  | (41,183 | ) |  |  | (35,301 | ) |  |  | (50,551 | ) |  |  | (53,919 | ) |  |  | (58,065 | ) |  |  | (497,324 | )
Unpaid liability (excluding ULAE) |  |  | 2,295 |  |  |  | 16,586 |  |  |  | 45,676 |  |  |  | 65,105 |  |  |  | 71,258 |  |  |  | 214,734 |
ULAE liability |  |  | 42 |  |  |  | 222 |  |  |  | 624 |  |  |  | 980 |  |  |  | 1,116 |  |  |  | 3,239 |
Unpaid liability (including ULAE) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
at 31 December 2017 |  |  | 2,337 |  |  |  | 16,808 |  |  |  | 46,300 |  |  |  | 66,085 |  |  |  | 72,374 |  |  |  | 217,973 |

Page 20

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(d) | Financial risk - interest

Interest rate risk is a function of general economic and financial market factors (such as the level, trend and volatility of interest rates) as well as the characteristics of the individual debt securities held in the Company’s investment portfolio. The Company cannot control the former but it can control the latter.

The Company manages interest rate risk by calculating the value-at-risk, average maturity and average duration of its debt securities portfolio. These indicators measure the sensitivity of the portfolio’s valuation to changes in interest rates. There is currently minimal interest rate risk exposure on the portfolio as these are principally short-to-medium term in duration.

Investment guidelines are established to manage this risk. These guidelines set parameters within which the external investment managers must operate. The guidelines are approved by the Audit Committee which is a sub-committee of the Board of Directors. The investment guidelines specify the limitations on the maximum percentage of assets that can be invested in a single issuer or in a single asset class. There are also specific limitations on the maximum maturity for various asset classes and minimum requirements of credit ratings.

The investment mix of debt securities held in the portfolio is as follows:

|  | 2018 |
|  | Fixed Rate |  |  | Floating Rate |  |  | Total |
Debt securities |  | Fair values £000 |  |  | % |  |  | Fair values £000 |  |  | % |  |  | Fair values £000 |  |  | % |
UK government |  |  | 137,515 |  |  |  | 46 | % |  |  | — |  |  |  | 0 | % |  |  | 137,515 |  |  |  | 46 | %
Non-UK government |  |  | 1,880 |  |  |  | 1 | % |  |  | — |  |  |  | 0 | % |  |  | 1,880 |  |  |  | 1 | %
Non-UK government agencies |  |  | 19,073 |  |  |  | 6 | % |  |  | 314 |  |  |  | 0 | % |  |  | 19,387 |  |  |  | 6 | %
Supranational |  |  | 19,676 |  |  |  | 7 | % |  |  | 392 |  |  |  | 0 | % |  |  | 20,068 |  |  |  | 7 | %
Corporate |  |  | 78,605 |  |  |  | 26 | % |  |  | 25,025 |  |  |  | 8 | % |  |  | 103,630 |  |  |  | 34 | %
Government backed |  |  | 17,852 |  |  |  | 6 | % |  |  | 394 |  |  |  | 0 | % |  |  | 18,246 |  |  |  | 6 | %
|  |  | 274,601 |  |  |  | 92 | % |  |  | 26,125 |  |  |  | 8 | % |  |  | 300,727 |  |  |  | 100 | %
|  | 2017 |
|  | Fixed Rate |  |  | Floating Rate |  |  | Total |
Debt securities |  | Fair values £000 |  |  | % |  |  | Fair values £000 |  |  | % |  |  | Fair values £000 |  |  | % |
UK government |  |  | 167,865 |  |  |  | 51 | % |  |  | — |  |  |  | 0 | % |  |  | 167,865 |  |  |  | 51 | %
Non-UK government |  |  | 3,485 |  |  |  | 1 | % |  |  | 2,591 |  |  |  | 1 | % |  |  | 6,076 |  |  |  | 2 | %
UK Government agencies |  |  | 1,465 |  |  |  | 0 | % |  |  | — |  |  |  | 0 | % |  |  | 1,465 |  |  |  | 0 | %
Non-UK government agencies |  |  | 17,617 |  |  |  | 6 | % |  |  | 703 |  |  |  | 0 | % |  |  | 18,320 |  |  |  | 6 | %
Supranational |  |  | 21,376 |  |  |  | 7 | % |  |  | 739 |  |  |  | 0 | % |  |  | 22,115 |  |  |  | 7 | %
Corporate |  |  | 63,173 |  |  |  | 19 | % |  |  | 21,922 |  |  |  | 7 | % |  |  | 85,095 |  |  |  | 26 | %
Government backed |  |  | 25,991 |  |  |  | 8 | % |  |  | — |  |  |  | 0 | % |  |  | 25,991 |  |  |  | 8 | %
|  |  | 300,972 |  |  |  | 92 | % |  |  | 25,955 |  |  |  | 8 | % |  |  | 326,927 |  |  |  | 100 | %

The sensitivity analysis for interest rate risk illustrates how changes in the portfolio’s fair values will fluctuate because of changes in market interest rates at the reporting date. This is detailed below assuming linear movements in interest rates.

|  | 2018 |  |  | 2017 |
|  | Fair Value Movement |  |  | Fair Value Movement |
Shifts in market interest rates |  | £000 |  |  | % |  |  | £000 |  |  | % |
100 basis points |  |  | (7,145 | ) |  |  | (2.4 | %) |  |  | (7,257 | ) |  |  | (2.2 | %)
75 basis points |  |  | (5,405 | ) |  |  | (1.8 | %) |  |  | (5,490 | ) |  |  | (1.7 | %)
50 basis points |  |  | (3,635 | ) |  |  | (1.2 | %) |  |  | (3,692 | ) |  |  | (1.1 | %)
25 basis points |  |  | (1,833 | ) |  |  | (0.6 | %) |  |  | (1,862 | ) |  |  | (0.6 | %)
(25) basis points |  |  | 1,867 |  |  |  | 0.6 | % |  |  | 1,897 |  |  |  | 0.6 | %
(50) basis points |  |  | 3,769 |  |  |  | 1.3 | % |  |  | 3,828 |  |  |  | 1.2 | %
(75) basis points |  |  | 5,707 |  |  |  | 1.9 | % |  |  | 5,797 |  |  |  | 1.8 | %
(100) basis points |  |  | 7,682 |  |  |  | 2.6 | % |  |  | 7,804 |  |  |  | 2.4 | %

Page 21

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(e) | Financial risk - foreign exchange

Although the Company’s presentation and reporting currency is GBP, it operates internationally and its exposures to foreign exchange risk arise primarily from USD and EUR currencies when these exchange rates fluctuate against GBP. This impacts the USD and EUR - denominated transactions, assets and liabilities. The Company seeks to mitigate foreign exchange risk by closely matching the estimated foreign currency denominated liabilities with assets in the same currency.

The Company’s USD and EUR - denominated assets and liabilities, translated into their carrying GBP amounts at these exchange rates of GBP 1 : USD 1.2760 : EUR 1.1127 (2017: GBP 1 : USD 1.3521 : EUR 1.1259) are as follows.

|  | 2018 |
|  | GBP denominations £000 |  |  | USD denominations £000 |  |  | EUR denominations £000 |  |  | Total £000 |
Total assets |  |  | 335,341 |  |  |  | 44,727 |  |  |  | 15,461 |  |  |  | 395,529 |
Total liabilities |  |  | 123,120 |  |  |  | 51,105 |  |  |  | 14,635 |  |  |  | 188,860 |
Total equity |  |  | 212,221 |  |  |  | (6,378 | ) |  |  | 826 |  |  |  | 206,669 |
|  | 2017 |
|  | GBP denominations £000 |  |  | USD denominations £000 |  |  | EUR denominations £000 |  |  | Total £000 |
Total assets |  |  | 349,164 |  |  |  | 62,792 |  |  |  | 19,510 |  |  |  | 431,466 |
Total liabilities |  |  | 159,584 |  |  |  | 52,374 |  |  |  | 14,985 |  |  |  | 226,943 |
Total equity |  |  | 189,580 |  |  |  | 10,418 |  |  |  | 4,525 |  |  |  | 204,523 |

The impact on equity of a USD and EUR foreign exchange rate shift of 10% weakening or strengthening against GBP is detailed below. This assumes all other variables, such as interest rates, remain constant while the underlying assets and liabilities in their base currencies also remain unchanged.

|  | 2018 |
Shifts in foreign exchange rates against GBP |  | USD denominated equity £000 |  |  | EUR denominated equity £000 |  |  | Total in/ (de)crease £000 |
10% weaker |  |  | 580 |  |  |  | (75 | ) |  |  | 505 |
10% stronger |  |  | (709 | ) |  |  | 92 |  |  |  | (617 | )
|  | 2017 |
Shifts in foreign exchange rates against GBP |  | USD denominated equity £000 |  |  | EUR denominated equity £000 |  |  | Total in/ (de)crease £000 |
10% weaker |  |  | (947 | ) |  |  | (411 | ) |  |  | (1,358 | )
10% stronger |  |  | 1,158 |  |  |  | 503 |  |  |  | 1,661 |

Page 22

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(f) | Financial risk - credit

Credit risk is the risk of potential financial loss due to unexpected default, or deterioration in the credit ratings of asset counterparties - causing a loss in asset values. These include in/reinsurance debtors receivable from brokers/cedants and financial investments with a diverse range of counterparty issuers.

Credit risk on in/reinsurance debtors is managed by conducting business with reputable intermediaries, with whom the Company has established relationships, and by rigorous cash collection procedures on overdue debtors.

Credit risk on financial investment is managed by stipulating a minimum credit rating score for each security within an asset class, setting exposure limits in each credit rating band, and limiting the amounts of credit exposure with any one counterparty.

The maturity dates of in/reinsurance debtors are as follows.

|  | 2018 £000 |  |  | 2017 £000 |
Less than 3 months overdue |  |  | 5,794 |  |  |  | 13,244 |
Between 4 and 12 months overdue |  |  | 156 |  |  |  | 775 |
Between 1 and 2 years overdue |  |  | 113 |  |  |  | 329 |
Beyond 2 years overdue |  |  | 568 |  |  |  | 550 |
Doubtful debt provision |  |  | (801 | ) |  |  | (1,782 | )
|  |  | 5,830 |  |  |  | 13,116 |

An analysis of the financial investment and in/reinsurance debtor exposures by counterparty credit ratings is as follows.

|  | 2018 |
|  | Debt securities £000 |  |  | Participations in investment pools £000 |  |  | Deposits with credit institutions £000 |  |  | Cash at bank and in hand £000 |  |  | Debtors arising out of in/ reinsurance operations £000 |  |  | Total £000 |
AAA |  |  | 166,809 |  |  |  | 58,247 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 225,056 |
AA+ |  |  | 11,408 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,408 |
AA |  |  | 27,501 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 27,501 |
AA- |  |  | 22,300 |  |  |  | — |  |  |  | — |  |  |  | 5,297 |  |  |  | — |  |  |  | 27,597 |
A+ |  |  | 18,266 |  |  |  | — |  |  |  | — |  |  |  | 84 |  |  |  | 4,364 |  |  |  | 22,714 |
A |  |  | 18,663 |  |  |  | — |  |  |  | 3,919 |  |  |  | 175 |  |  |  | 54 |  |  |  | 22,811 |
A- |  |  | 16,304 |  |  |  | — |  |  |  | 1,959 |  |  |  | 13,644 |  |  |  | — |  |  |  | 31,907 |
BBB+ |  |  | 8,424 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 8,424 |
BBB |  |  | 11,051 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,051 |
Not rated |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,213 |  |  |  | 2,213 |
|  |  | 300,726 |  |  |  | 58,247 |  |  |  | 5,878 |  |  |  | 19,200 |  |  |  | 6,631 |  |  |  | 390,682 |

Page 23

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(f) | Financial risk - credit (continued)

|  | 2017 |
|  | Debt securities £000 |  |  | Participations in investment pools £000 |  |  | Deposits with credit institutions £000 |  |  | Cash at bank and in hand £000 |  |  | Debtors arising out of in/reinsurance operations £000 |  |  | Total £000 |
AAA |  |  | 67,012 |  |  |  | 18,674 |  |  |  | — |  |  |  | — |  |  |  | 2 |  |  |  | 85,688 |
AA+ |  |  | 11,950 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 548 |  |  |  | 12,498 |
AA |  |  | 170,788 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 170,806 |
AA- |  |  | 15,669 |  |  |  | — |  |  |  | — |  |  |  | 19,641 |  |  |  | 53 |  |  |  | 35,363 |
A+ |  |  | 18,875 |  |  |  | — |  |  |  | — |  |  |  | 1,575 |  |  |  | 3,606 |  |  |  | 24,056 |
A |  |  | 22,716 |  |  |  | — |  |  |  | 25,829 |  |  |  | 243 |  |  |  | 328 |  |  |  | 49,116 |
A- |  |  | 7,735 |  |  |  | — |  |  |  | 3,698 |  |  |  | 13,485 |  |  |  | 4 |  |  |  | 24,922 |
BBB+ |  |  | 4,851 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,851 |
BBB |  |  | 7,331 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 21 |  |  |  | 7,352 |
Not rated |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,319 |  |  |  | 10,319 |
|  |  | 326,927 |  |  |  | 18,674 |  |  |  | 29,527 |  |  |  | 34,944 |  |  |  | 14,899 |  |  |  | 424,971 |

Debtors arising out of in/reinsurance operations

| • |  | These reflect counterparty credit exposures to policyholders/cedants that arise in the course of conducting underwriting activities. Exposures in the “not rated” category relate to policyholders/cedants that do not have a credit rating. Notwithstanding, the Company transacts most of its in/reinsurance business through major and reputable intermediaries, where the relationships are either governed by terms of business agreements of a non-risk transfer type, or the law of agency in the absence of agreements - where the legal effect of either is the same.

| • |  | Legally, this means the Company is not on risk until the monies are received from policyholders/cedants by the Company—as the intermediary is acting in its capacity as agent rather than as principal. Consequently, monies received from policyholders/cedants by intermediaries that fail to pass these on will not result in the Company being on risk. Therefore, the Company’s overall counterparty credit exposures are deemed to be low as the in/reinsurance coverage with policyholders/cedants could be cancelled pro rata temporis if monies are not received.

Page 24

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(g) | Financial risk - liquidity

Liquidity risk is the risk that the Company is unable to meet its contractual obligations in a timely manner due to the inability of its investment assets to be sold without causing a significant movement in the price and with minimum loss in value.

The Company aims to keep liquidity risk as low as possible to be able to meet its contractual obligations in a timely manner, even under stressed scenarios such as following a major catastrophic event.

The Company’s investment guidelines puts the safety and liquidity of its investable assets before and above its pursuit of investment returns. The Company holds a significant amount of its assets in shorter-term cash, deposits and investment pool. Its longer term assets are invested in debt securities, almost all of which are of high credit quality and can be sold on the open market quickly with little or no impact on prices.

The maturity dates of financial investment and cash at bank and in hand are as follows.

|  | 2018 |
|  | 0-1 year £000 |  |  | 2-3 years £000 |  |  | 4-5 years £000 |  |  | > 5 years £000 |  |  | Total £000 |
Listed debt securities |  |  | 95,967 |  |  |  | 94,236 |  |  |  | 78,546 |  |  |  | 31,977 |  |  |  | 300,726 |
Participations in investment pools |  |  | 58,247 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 58,247 |
Deposits with credit institutions |  |  | 5,878 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,878 |
Cash at bank and in hand |  |  | 19,200 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 19,200 |
|  |  | 179,292 |  |  |  | 94,236 |  |  |  | 78,546 |  |  |  | 31,977 |  |  |  | 384,051 |
|  | 2017 |
|  | 0-1 year £000 |  |  | 2-3 years £000 |  |  | 4-5 years £000 |  |  | > 5 years £000 |  |  | Total £000 |
Listed debt securities |  |  | 120,120 |  |  |  | 93,644 |  |  |  | 81,208 |  |  |  | 31,955 |  |  |  | 326,927 |
Participations in investment pools |  |  | 18,674 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 18,674 |
Deposits with credit institutions |  |  | 29,527 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 29,527 |
Cash at bank and in hand |  |  | 34,944 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 34,944 |
|  |  | 203,265 |  |  |  | 93,644 |  |  |  | 81,208 |  |  |  | 31,955 |  |  |  | 410,072 |
The maturity dates of claim reserves (excluding unearned premium reserves) shown below are based on estimated future payment outflows. |
|  | 2018 |
|  | 0-1 year £000 |  |  | 2-3 years £000 |  |  | 4-5 years £000 |  |  | > 5 years £000 |  |  | Total £000 |
Outstanding claims reserves |  |  | 44,897 |  |  |  | 39,538 |  |  |  | 21,546 |  |  |  | 19,347 |  |  |  | 125,328 |
Claims incurred but not reported reserves |  |  | 18,571 |  |  |  | 16,353 |  |  |  | 8,911 |  |  |  | 8,002 |  |  |  | 51,837 |
Unallocated loss adjustment expense reserves |  |  | 1,022 |  |  |  | 899 |  |  |  | 490 |  |  |  | 440 |  |  |  | 2,851 |
|  |  | 64,490 |  |  |  | 56,790 |  |  |  | 30,947 |  |  |  | 27,789 |  |  |  | 180,016 |
|  | 2017 |
|  | 0-1 year £000 |  |  | 2-3 years £000 |  |  | 4-5 years £000 |  |  | > 5 years £000 |  |  | Total £000 |
Outstanding claims reserves |  |  | 38,089 |  |  |  | 48,239 |  |  |  | 27,048 |  |  |  | 26,081 |  |  |  | 139,457 |
Claims incurred but not reported reserves |  |  | 21,022 |  |  |  | 26,624 |  |  |  | 14,928 |  |  |  | 14,395 |  |  |  | 76,969 |
Unallocated loss adjustment expense reserves |  |  | 885 |  |  |  | 1,120 |  |  |  | 628 |  |  |  | 606 |  |  |  | 3,239 |
|  |  | 59,996 |  |  |  | 75,983 |  |  |  | 42,604 |  |  |  | 41,082 |  |  |  | 219,665 |

Page 25

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(h) | Operational risk

Operational risk refers to the risk of financial or other loss, or potential damage to the Company’s reputation resulting from inadequate or failed internal processes, people and systems or from external events.

The following are some examples of operational risks facing the Company:

| • |  | Legal and compliance risk.

| • |  | Information technology risk.

| • |  | Loss of key officers or employees.

| • |  | System failure and business interruption.

| • |  | Execution errors.

| • |  | Employment practice liability.

| • |  | Internal and external fraud.

These risks are managed through internal control processes and monitoring tools such as the risk register.

The Company has a low appetite for operational risk. Unlike underwriting and financial risks, operational risk has no upside and only downside, and therefore should be avoided if feasible and cost-effective.

Operational risk is difficult to quantify but can only be controlled through appropriate corporate governance and internal control measures. The Company has developed a number of policies and procedures aimed to control or mitigate the negative impact that may potentially result from operational risk events.

(i) | Strategic risk

Strategic risk is the risk to earnings or capital arising from adverse business decisions or the improper implementation of those decisions, or the inability to act in response to business opportunities or adapt to changes in its operating environment.

The following are examples of strategic risks facing the Company:

| • |  | Planning processes that are not fully integrated with internal financial indicators and external benchmarks, or are based on forecasts that are inherently optimistic.

| • |  | Deficiencies and weaknesses in understanding of regulatory requirements, and risk comprehension by claims handling staff.

| • |  | Failure of large information technology and infrastructure projects to achieve specified goals.

The responsibility for strategic risk control and mitigation rests with the Executive Committee, a sub-committee of the Board of Directors.

Page 26

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(j) | Capital management

The Company attempts to identify and appropriately define all material risks internal and external to the Company, understand the manifestations of each risk, and ensure that risks are managed, controlled or mitigated. To the extent that a risk is not fully mitigated, the Company will measure the financial impact of the risk and include it in its capital adequacy assessment and measurement framework. The internal capital model covers all of the material risks identified above, including regulatory obligations.

The Company’s objectives in managing its capital are:

| • |  | To match the profile of its assets and liabilities, taking account of the risks inherent in the business.

| • |  | To satisfy the requirements of its policyholders, regulators and rating agencies.

| • |  | To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets.

| • |  | To allocate capital efficiently in order to support stability.

| • |  | To manage exposures in line with movements in exchange rates.

The Company has various sources of capital available to it and seeks to optimise its capital usage to consistently optimise shareholder returns. The Company considers not only the traditional sources of capital funding but the alternative sources of capital including reinsurance when assessing its capital deployment and associated usage. The Company manages as capital, all items that are eligible to be treated as capital for regulatory purposes.

The Company is regulated by the Prudential Regulation Authority and the Financial Conduct Authority. As a regulated entity, it is subject to insurance solvency regulations under the EU Directive and the Solvency II Directive - which specify the minimum amount and type of capital that must be held in excess of its insurance liability obligations - in order to meet a certain solvency threshold. The Company manages capital in accordance with these rules and has embedded in its asset liability management framework the necessary tests to ensure continuous and full compliance with such regulations. In summary:

| • |  | At 31 December 2018, under the Solvency II Directive (effective 1 January 2016) the estimated total capital available to meet the Solvency Capital Requirement (being the Own Funds) is £155.6 million with the estimated Solvency Capital Requirement at £81.5 million and the estimated total capital available to meet the Minimum Capital Requirement (being the Own Funds) is £155.6 million with the Minimum Capital Requirement at £25.0 million. The Company has complied with all externally imposed capital requirements throughout the year. The 31 December 2018 annual Solvency II returns are to be filed by 22 April 2019.

In addition, the Company manages capital by reference to various self-assessed risk-based measures, including but not limited to the use of internal models, throughout the year.

(k) | Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

| • |  | Level 1

Valuations based on quoted prices in active markets. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.

| • |  | Level 2

Valuations based on prices of recent transactions when no quoted active price is available for identical assets or liabilities that the Company has the ability to access. Reference is also made to quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals, broker quotes and certain pricing indices.

Page 27

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

1. | RISK MANAGEMENT (continued)

(k) | Fair value estimation (continued)

| • |  | Level 3

Valuations based on a valuation technique. These measurements include circumstances where there is little, if any, market activity for the asset or liability. In these cases, significant management assumptions can be used to establish management’s best estimate of the assumptions used by other market participants in determining the fair value of the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement of the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgement, and the Company considers factors specific to the asset or liability.

Below is a summary of assets that are measured at fair value on a recurring basis:

|  | 2018 |
Financial assets at fair value |  | Level 1 £000 |  |  | Level 2 £000 |  |  | Level 3 £000 |  |  | Total £000 |
Listed debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
UK government |  |  | 137,515 |  |  |  | — |  |  |  | — |  |  |  | 137,515 |
Non-UK government |  |  | 1,880 |  |  |  | — |  |  |  | — |  |  |  | 1,880 |
Non-UK government agencies |  |  | 18,026 |  |  |  | 1,361 |  |  |  | — |  |  |  | 19,387 |
Supranational |  |  | 13,565 |  |  |  | 6,503 |  |  |  | — |  |  |  | 20,068 |
Corporate |  |  | 88,115 |  |  |  | 15,515 |  |  |  | — |  |  |  | 103,630 |
Government backed |  |  | 16,020 |  |  |  | 2,226 |  |  |  | — |  |  |  | 18,246 |
Participations in investment pools |  |  | 58,247 |  |  |  | — |  |  |  | — |  |  |  | 58,247 |
Deposits with credit institutions |  |  | 5,878 |  |  |  | — |  |  |  | — |  |  |  | 5,878 |
Cash at bank and in hand |  |  | 19,200 |  |  |  | — |  |  |  | — |  |  |  | 19,200 |
|  |  | 358,446 |  |  |  | 25,605 |  |  |  | — |  |  |  | 384,051 |
|  | 2017 |
Financial assets at fair value |  | Level 1 £000 |  |  | Level 2 £000 |  |  | Level 3 £000 |  |  | Total £000 |
Listed debt securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
UK government |  |  | 167,865 |  |  |  | — |  |  |  | — |  |  |  | 167,865 |
Non-UK government |  |  | 6,074 |  |  |  | — |  |  |  | — |  |  |  | 6,074 |
Non-UK government agencies |  |  | 15,579 |  |  |  | 4,206 |  |  |  | — |  |  |  | 19,785 |
Supranational |  |  | 15,613 |  |  |  | 6,502 |  |  |  | — |  |  |  | 22,115 |
Corporate |  |  | 67,383 |  |  |  | 17,713 |  |  |  | — |  |  |  | 85,096 |
Government backed |  |  | 23,487 |  |  |  | 2,505 |  |  |  | — |  |  |  | 25,992 |
Participations in investment pools |  |  | 18,674 |  |  |  | — |  |  |  | — |  |  |  | 18,674 |
Deposits with credit institutions |  |  | 29,527 |  |  |  | — |  |  |  | — |  |  |  | 29,527 |
Cash at bank and in hand |  |  | 34,944 |  |  |  | — |  |  |  | — |  |  |  | 34,944 |
|  |  | 379,146 |  |  |  | 30,926 |  |  |  | — |  |  |  | 410,072 |

During the year, there were no transfers (2017: none) made from Levels 1 or 2 into Level 3, and vice versa, within the fair value hierarchy.

Page 28

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

2. | SEGMENTAL INFORMATION

(a) | Analyses by placing type

|  | 2018 |
|  | Gross premiums written £000 |  |  | Gross premiums earned £000 |  |  | Gross claims incurred £000 |  |  | Gross operating expenses £000 |  |  | Reinsu- rance balances £000 |  |  | Underwriting profit/(loss) £000 |
Assumed treaty business |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Proportional reinsurance |  |  | (6,942 | ) |  |  | (5,381 | ) |  |  | (3,965 | ) |  |  | (1,775 | ) |  |  | — |  |  |  | (11,121 | )
Non-proportional reinsurance |  |  | (1,202 | ) |  |  | (1,171 | ) |  |  | 14,455 |  |  |  | (171 | ) |  |  | — |  |  |  | 13,113 |
Direct and assumed facultative business |  |  | (72 | ) |  |  | 218 |  |  |  | (617 | ) |  |  | — |  |  |  | (38 | ) |  |  | (437 | )
|  |  | (8,216 | ) |  |  | (6,334 | ) |  |  | 9,873 |  |  |  | (1,946 | ) |  |  | (38 | ) |  |  | 1,555 |
|  | 2017 |
|  | Gross premiums written £000 |  |  | Gross premiums earned £000 |  |  | Gross claims incurred £000 |  |  | Gross operating expenses £000 |  |  | Reinsu- rance balances £000 |  |  | Underwriting profit/(loss) £000 |
Assumed treaty business |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Proportional reinsurance |  |  | (6,216 | ) |  |  | 925 |  |  |  | 5,106 |  |  |  | 4,517 |  |  |  | (2,724 | ) |  |  | 7,824 |
Non-proportional reinsurance |  |  | 797 |  |  |  | 1,715 |  |  |  | (2,776 | ) |  |  | (1,810 | ) |  |  | — |  |  |  | (2,871 | )
Direct and assumed facultative business |  |  | 284 |  |  |  | 605 |  |  |  | 1,759 |  |  |  | (89 | ) |  |  | 99 |  |  |  | 2,374 |
|  |  | (5,135 | ) |  |  | 3,245 |  |  |  | 4,089 |  |  |  | 2,618 |  |  |  | (2,625 | ) |  |  | 7,327 |

The reinsurance balance represents the change to the Statement of Comprehensive Income - Technical Account Balance from the aggregate of all items relating to reinsurance outwards.

Page 29

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

2. | SEGMENTAL INFORMATION (continued)

(b) | Analyses by geographical area

|  | 2018 |  |  | 2017 |
By destination |  | Assumed treaty £000 |  |  | Direct/ assumed facultative £000 |  |  | Total £000 |  |  | Assumed treaty £000 |  |  | Direct/ assumed facultative £000 |  |  | Total £000 |
Gross premiums written |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United Kingdom |  |  | (435 | ) |  |  | — |  |  |  | (435 | ) |  |  | (11 | ) |  |  | (2 | ) |  |  | (13 | )
North, Central and South America |  |  | (736 | ) |  |  | — |  |  |  | (736 | ) |  |  | (247 | ) |  |  | 134 |  |  |  | (113 | )
Europe |  |  | 5 |  |  |  | 62 |  |  |  | 67 |  |  |  | 476 |  |  |  | 69 |  |  |  | 545 |
Worldwide |  |  | (4,262 | ) |  |  | 5 |  |  |  | (4,257 | ) |  |  | (3,006 | ) |  |  | 19 |  |  |  | (2,987 | )
Africa and Middle East |  |  | (545 | ) |  |  | (140 | ) |  |  | (685 | ) |  |  | (318 | ) |  |  | 64 |  |  |  | (254 | )
Asia and Australia |  |  | (2,171 | ) |  |  | 1 |  |  |  | (2,170 | ) |  |  | (2,313 | ) |  |  | — |  |  |  | (2,313 | )
|  |  | (8,144 | ) |  |  | (72 | ) |  |  | (8,216 | ) |  |  | (5,419 | ) |  |  | 284 |  |  |  | (5,135 | )

|  | 2018 |  |  | 2017 |
By origin |  | Assumed treaty £000 |  |  | Direct/ assumed facultative £000 |  |  | Total £000 |  |  | Assumed treaty £000 |  |  | Direct/ assumed facultative £000 |  |  | Total £000 |
United Kingdom |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  |  | (8,144 | ) |  |  | (72 | ) |  |  | (8,216 | ) |  |  | (5,419 | ) |  |  | 284 |  |  |  | (5,135 | )
Profit/(loss) before tax |  |  | 3,072 |  |  |  | (434 | ) |  |  | 2,638 |  |  |  | 5,693 |  |  |  | 2,376 |  |  |  | 8,069 |
Profit/(loss) after tax |  |  | 2,500 |  |  |  | (354 | ) |  |  | 2,145 |  |  |  | 4,697 |  |  |  | 1,961 |  |  |  | 6,658 |
Net assets |  |  | 199,486 |  |  |  | 7,183 |  |  |  | 206,669 |  |  |  | 198,485 |  |  |  | 6,038 |  |  |  | 204,523 |

Net assets attributable to assumed treaty operations, and to direct and facultative operations have been distributed based on total capital as a % of total liabilities.

3. | PROVISION FOR UNEARNED PREMIUMS

|  | 2018 £000 |  |  | 2017 £000 |
Gross |  |  |  |  |  |  |  |
At beginning of year |  |  | 2,604 |  |  |  | 11,304 |
Exchange gain/(loss) on retranslation of brought forward balances from last to this year closing rates |  |  | 110 |  |  |  | (440 | )
Increase/(decrease) during year (refer Note 4) |  |  | (1,882 | ) |  |  | (8,380 | )
Exchange gain/(loss) on retranslation of in-year movement from average to closing rates |  |  | (66 | ) |  |  | 120 |
At end of year |  |  | 766 |  |  |  | 2,604 |
Reinsurers’ share |  |  |  |  |  |  |  |
At beginning of year |  |  | 317 |  |  |  | 662 |
Exchange gain/(loss) on retranslation of brought forward balances from last to this year closing rates |  |  | 12 |  |  |  | (28 | )
Increase/(decrease) during year (refer Note 4) |  |  | (291 | ) |  |  | (321 | )
Exchange loss/(gain) on retranslation of in-year movement from average to closing rates |  |  | (7 | ) |  |  | 4 |
At end of year |  |  | 31 |  |  |  | 317 |

Page 30

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

4. | EARNED PREMIUMS, NET OF REINSURANCE

|  | 2018 |  |  | 2017 |
| Gross £000 |  |  | Reinsurance £000 |  |  | Net £000 |  |  | Gross £000 |  |  | Reinsurance £000 |  |  | Net £000 |
Premiums written |  |  | (8,216 | ) |  |  | 77 |  |  |  | (8,139 | ) |  |  | (5,135 | ) |  |  | (284 | ) |  |  | (5,419 | )
Change in the provision for unearned premiums (refer Note 3) |  |  | 1,882 |  |  |  | (291 | ) |  |  | 1,591 |  |  |  | 8,380 |  |  |  | (321 | ) |  |  | 8,059 |
Earned premiums |  |  | (6,334 | ) |  |  | (214 | ) |  |  | (6,548 | ) |  |  | 3,245 |  |  |  | (605 | ) |  |  | 2,640 |

5. | CLAIMS INCURRED, NET OF REINSURANCE

|  | 2018 |  |  | 2017 |
|  | Gross £000 |  |  | Reinsurance £000 |  |  | Net £000 |  |  | Gross £000 |  |  | Reinsurance £000 |  |  | Net £000 |
Claims paid |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Claims and allocated loss adjustment expenses paid |  |  | (32,782 | ) |  |  | 293 |  |  |  | (32,489 | ) |  |  | (54,567 | ) |  |  | 866 |  |  |  | (53,701 | )
Unallocated loss adjustment expenses paid (refer Note 7) |  |  | (58 | ) |  |  | — |  |  |  | (58 | ) |  |  | (215 | ) |  |  | — |  |  |  | (215 | )
|  |  | (32,840 | ) |  |  | 293 |  |  |  | (32,547 | ) |  |  | (54,782 | ) |  |  | 866 |  |  |  | (53,916 | )
Change in the provision for claims (refer Note 6(a)) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Outstanding claims reserve movement |  |  | 15,389 |  |  |  | 258 |  |  |  | 15,647 |  |  |  | (13,781 | ) |  |  | (953 | ) |  |  | (14,734 | )
Claims incurred but not reported reserve movement |  |  | 26,881 |  |  |  | (61 | ) |  |  | 26,820 |  |  |  | 71,534 |  |  |  | (3,402 | ) |  |  | 68,132 |
Unallocated loss adjustment expense reserve movement |  |  | 443 |  |  |  | — |  |  |  | 443 |  |  |  | 1,118 |  |  |  | — |  |  |  | 1,118 |
|  |  | 42,713 |  |  |  | 197 |  |  |  | 42,910 |  |  |  | 58,871 |  |  |  | (4,355 | ) |  |  | 54,516 |
Claims incurred |  |  | 9,873 |  |  |  | 490 |  |  |  | 10,363 |  |  |  | 4,089 |  |  |  | (3,489 | ) |  |  | 600 |

Page 31

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

6. | TECHNICAL PROVISIONS

(a) | Claims outstanding

|  | 2018 |
|  | Out- standing claims reserves £000 |  |  | Claims incurred but not reported reserves £000 |  |  | Unallocated loss adjustment expense reserves £000 |  |  | Total claims outstanding £000 |
Gross |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 139,457 |  |  |  | 76,969 |  |  |  | 3,239 |  |  |  | 219,665 |
Exchange gain on retranslation of brought forward balances from last to this year closing rates |  |  | 1,258 |  |  |  | 1,874 |  |  |  | 57 |  |  |  | 3,189 |
Increase/(decrease) during year (refer Note 5) |  |  | (15,389 | ) |  |  | (26,881 | ) |  |  | (443 | ) |  |  | (42,713 | )
Exchange loss on retranslation of in-year movement from average to closing rates |  |  | 2 |  |  |  | (125 | ) |  |  | (2 | ) |  |  | (125 | )
At end of year |  |  | 125,328 |  |  |  | 51,837 |  |  |  | 2,851 |  |  |  | 180,016 |
Reinsurers’ share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 1,565 |  |  |  | 127 |  |  |  | — |  |  |  | 1,692 |
Exchange loss on retranslation of brought forward balances from last to this year closing rates |  |  | 49 |  |  |  | 5 |  |  |  | — |  |  |  | 54 |
Decrease during year (refer Note 5) |  |  | 258 |  |  |  | (61 | ) |  |  | — |  |  |  | 197 |
Exchange gain on retranslation of in-year movement from average to closing rates |  |  | 5 |  |  |  | — |  |  |  | — |  |  |  | 5 |
At end of year |  |  | 1,877 |  |  |  | 71 |  |  |  | — |  |  |  | 1,948 |
|  | 2017 |
|  |  |  |  |  |  |  | Unallocated |  |  |  |
|  | Out- |  |  | Claims |  |  | loss |  |  |  |
|  | standing |  |  | incurred but |  |  | adjustment |  |  | Total |
|  | claims |  |  | not reported |  |  | expense |  |  | claims out- |
|  | reserves |  |  | reserves |  |  | reserves |  |  | standing |
|  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
Gross |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 127,640 |  |  |  | 152,550 |  |  |  | 4,452 |  |  |  | 284,642 |
Exchange loss on retranslation of brought forward balances from last to this year closing rates |  |  | (2,318 | ) |  |  | (5,285 | ) |  |  | (112 | ) |  |  | (7,715 | )
Increase/(decrease) during year (refer Note 5) |  |  | 13,781 |  |  |  | (71,534 | ) |  |  | (1,118 | ) |  |  | (58,871 | )
Exchange gain on retranslation of in-year movement from average to closing rates |  |  | 354 |  |  |  | 1,238 |  |  |  | 17 |  |  |  | 1,609 |
At end of year |  |  | 139,457 |  |  |  | 76,969 |  |  |  | 3,239 |  |  |  | 219,665 |
Reinsurers’ share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 2,562 |  |  |  | 3,544 |  |  |  | — |  |  |  | 6,106 |
Exchange loss on retranslation of brought forward balances from last to this year closing rates |  |  | (54 | ) |  |  | (26 | ) |  |  | — |  |  |  | (80 | )
Increase/(decrease) during year (refer Note 5) |  |  | (953 | ) |  |  | (3,402 | ) |  |  | — |  |  |  | (4,355 | )
Exchange loss on retranslation of in-year movement from average to closing rates |  |  | 10 |  |  |  | 11 |  |  |  | — |  |  |  | 21 |
At end of year |  |  | 1,565 |  |  |  | 127 |  |  |  | — |  |  |  | 1,692 |

Page 32

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

6. | TECHNICAL PROVISIONS (continued)

(b) | Movements in prior accident years’ provision for claims outstanding

The following favourable/(adverse) changes were experienced during the year:

|  | 2018 |  |  | 2017 |
|  | Non- |  |  |  |  |  |  |  |  | Non- |  |  |  |  |  |  |
|  | catastrophe |  |  | Catastrophe |  |  | Total |  |  | catastrophe |  |  | Catastrophe |  |  | Total |
|  | losses |  |  | losses |  |  | losses |  |  | losses |  |  | losses |  |  | losses |
|  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
Assumed treaty business |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Proportional reinsurance |  |  | (3,450 | ) |  |  | — |  |  |  | (3,450 | ) |  |  | 8,890 |  |  |  | — |  |  |  | 8,481 |
Non-proportional reinsurance |  |  | 14,297 |  |  |  | — |  |  |  | 14,297 |  |  |  | (2,623 | ) |  |  | — |  |  |  | (2,623 | )
Direct and assumed facultative business |  |  | (554 | ) |  |  | — |  |  |  | (554 | ) |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 10,293 |  |  |  | — |  |  |  | 10,293 |  |  |  | 5,859 |  |  |  | — |  |  |  | 5,859 |

7. | NET OPERATING EXPENSES

|  | 2018 |  |  | 2017 |
|  | Gross |  |  | Reinsurance |  |  | Net |  |  | Gross |  |  | Reinsurance |  |  | Net |
|  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |
Acquisition costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Acquisition costs |  |  | (1,580 | ) |  |  | (48 | ) |  |  | (1,628 | ) |  |  | 5,491 |  |  |  | 16 |  |  |  | 5,507 |
Profit commissions |  |  | 1,042 |  |  |  | (285 | ) |  |  | 757 |  |  |  | 3,287 |  |  |  | 1,416 |  |  |  | 4,703 |
Change in deferred acquisition costs (refer Note 18) |  |  | (427 | ) |  |  | 19 |  |  |  | (408 | ) |  |  | (1,750 | ) |  |  | 37 |  |  |  | (1,713 | )
Change in deferred profit commissions (refer Note 18) |  |  | (89 | ) |  |  | — |  |  |  | (89 | ) |  |  | (109 | ) |  |  | — |  |  |  | (109 | )
|  |  | (1,054 | ) |  |  | (314 | ) |  |  | (1,368 | ) |  |  | 6,919 |  |  |  | 1,469 |  |  |  | 8,388 |
Administrative expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross administrative expenses |  |  | (980 | ) |  |  | — |  |  |  | (980 | ) |  |  | (4,610 | ) |  |  | — |  |  |  | (4,610 | )
Transferred to unallocated loss adjustment expenses paid (refer Note 5) |  |  | 58 |  |  |  | — |  |  |  | 58 |  |  |  | 215 |  |  |  | — |  |  |  | 215 |
Transferred to investment expenses |  |  | 30 |  |  |  | — |  |  |  | 30 |  |  |  | 94 |  |  |  | — |  |  |  | 94 |
Transferred to acquisition costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  |  | (892 | ) |  |  | — |  |  |  | (892 | ) |  |  | (4,301 | ) |  |  | — |  |  |  | (4,301 | )
Net operating expenses |  |  | (1,946 | ) |  |  | (314 | ) |  |  | (2,260 | ) |  |  | 2,618 |  |  |  | 1,469 |  |  |  | 4,087 |

Page 33

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

8. | INVESTMENT INCOME

|  | 2018 £000 |  |  | 2017 £000 |
Income from debt securities |  |  | 6,048 |  |  |  | 5,716 |
Income from deposits with ceding undertakings and other deposits |  |  | 3 |  |  |  | 6 |
Income from deposits with credit institutions and cash at bank and in hand |  |  | 242 |  |  |  | 240 |
Income from participations in investment pools |  |  | 258 |  |  |  | 121 |
|  |  | 6,551 |  |  |  | 6,083 |

9. | OTHER INCOME AND OTHER CHARGES

(a) | Other Income

|  | 2018 £000 |  |  | 2017 £000 |
Rental income from sublease |  |  | — |  |  |  | 133 |
Fee income from group undertakings |  |  | — |  |  |  | 42 |
Other income |  |  | 5 |  |  |  | 30 |
|  |  | 5 |  |  |  | 205 |

(b) | Other Charges

|  | 2018 £000 |  |  | 2017 £000 |
Foreign exchange loss |  |  | (579 | ) |  |  | (1,156 | )
|  |  | (579 | ) |  |  | (1,156 | )

10. | CORPORATION TAX

(a) | Tax charge on profit on ordinary activities

|  | 2018 £000 |  |  | 2017 £000 |
United Kingdom corporation tax at 19% (2017: 19.25%) |  |  |  |  |  |  |  |
Current tax on income for the year |  |  | (447 | ) |  |  | (1,884 | )
Adjustments in respect of previous financial years |  |  | — |  |  |  | 1,438 |
Total current tax |  |  | (447 | ) |  |  | (446 | )
United Kingdom deferred tax movements |  |  |  |  |  |  |  |
Origination and reversal of timing differences |  |  | (45 | ) |  |  | 330 |
Adjustment in respect of previous financial years |  |  | — |  |  |  | (1,295 | )
Total deferred tax movements (refer Note 10(d)) |  |  | (45 | ) |  |  | (965 | )
Tax on profit on ordinary activities (refer Note 10(b)) |  |  | (492 | ) |  |  | (1,411 | )

Page 34

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

10. | CORPORATION TAX (continued)

(b) | Factors affecting tax charge for the year

The tax assessed on the profit on ordinary activities for the year is different than that resulting in applying the standard rate of corporation tax in the UK of 19% (2017: 19.25%). The differences are reconciled below:

|  | 2018 £000 |  |  | 2017 £000 |
Profit on ordinary activities before tax |  |  | 2,638 |  |  |  | 8,069 |
Profit on ordinary activities before tax multiplied by the standard rate of corporation tax in the United Kingdom at 19% (2017: 19.25%) |  |  | (501 | ) |  |  | (1,553 | )
Factors affecting charge: |
Expenses not deductible for tax purposes |  |  | (1 | ) |  |  | (1 | )
Differences in tax rates |  |  | 10 |  |  |  | (1 | )
Adjustment in respect of prior periods |  |  | — |  |  |  | 144 |
|  |  | 9 |  |  |  | 142 |
Tax charge for the year (refer Note 10(a)) |  |  | (492 | ) |  |  | (1,411 | )

(c) | Components of current corporation tax (creditors) / debtors

|  | 2018 |  |  | 2017 |
|  | £000 |  |  | £000 |
Corporation tax in respect of current financial year |  |  | (447 | ) |  |  | (1,478 | )
Corporation tax in respect of prior financial year |  |  | (4 | ) |  |  | 1,219 |
Corporation tax (creditor)/debtor (refer Note 22) |  |  | (451 | ) |  |  | (259 | )

(d) | Components of deferred tax assets / (liabilities)

|  | 2018 |
|  | At beginning of the year £000 |  |  | Movement during the year - pure £000 |  |  | Movement during the year - adjustment £000 |  |  | Movement during the year - rate change £000 |  |  | At end of the year £000 |
Tangible fixed assets depreciation less/(greater) than capital allowances |  |  | 257 |  |  |  | (45 | ) |  |  | — |  |  |  | — |  |  |  | 212 |
Prepaid/accrued items |  |  | 2 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2 |
Doubtful debt provision |  |  | 333 |  |  |  | (217 | ) |  |  | — |  |  |  | — |  |  |  | 116 |
Claims equalisation reserves: |  |  | (827 | ) |  |  | 217 |  |  |  | — |  |  |  | — |  |  |  | (610 | )
|  |  | (235 | ) |  |  | (45 | ) |  |  | — |  |  |  | — |  |  |  | (280 | )

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. With effect from 1 April 2017 the UK headline rate of corporation tax reduced from 20% to 19%, and will reduce further to 17% on 1 April 2020. The rate reductions to 19% and 17% were substantively enacted at the balance sheet date. The closing deferred tax balance is recognised at a blended rate between 19% and 17% based on when the deferred tax balance is estimated to reverse.

Page 35

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

(d) | Components of deferred tax assets/(liabilities)(continued)

|  |  |  |  | 2017 |
|  | At beginning of the year £000 |  |  | Movement during the year pure £000 |  |  | Movement during the year - adjustment £000 |  |  | Movement during the year - rate change £000 |  |  | At end of the year £000 |
Tangible fixed assets depreciation less/(greater) than capital allowances |  |  | 234 |  |  |  | (35 | ) |  |  | 58 |  |  |  | — |  |  |  | 257 |
Prepaid/accrued items |  |  | 5 |  |  |  | (3 | ) |  |  | — |  |  |  | — |  |  |  | 2 |
Doubtful debt provision |  |  | 185 |  |  |  | 148 |  |  |  | — |  |  |  | — |  |  |  | 333 |
Claims equalisation reserves: |  |  | (1,047 | ) |  |  | 220 |  |  |  | — |  |  |  | — |  |  |  | (827 | )
Losses carried forward: |  |  | 1,353 |  |  |  | — |  |  |  | (1,353 | ) |  |  | — |  |  |  | — |
|  |  | 730 |  |  |  | 330 |  |  |  | (1,295 | ) |  |  | — |  |  |  | (235 | )

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. With effect from 1 April 2017 the UK headline rate of corporation tax reduced from 20% to 19%, and will reduce further to 17% on 1 April 2020. The rate reductions to 19% and 17% were substantively enacted at the balance sheet date. The closing deferred tax balance is recognised at a blended rate between 19% and 17% based on when the deferred tax balance is estimated to reverse.

11. | OTHER FINANCIAL INVESTMENTS

|  | 2018 £000 |  |  | 2017 £000 |
Listed debt securities |  |  | 300,726 |  |  |  | 326,927 |
Participations in investment pools |  |  | 58,247 |  |  |  | 18,674 |
Deposits with credit institutions |  |  | 5,878 |  |  |  | 29,527 |
|  |  | 364,851 |  |  |  | 375,128 |

12. | DEPOSITS WITH CEDING UNDERTAKINGS

|  | 2018 £000 |  |  | 2017 £000 |
Deposits with cedants |  |  | 1,336 |  |  |  | 1,503 |
|  |  | 1,336 |  |  |  | 1,503 |

Page 36

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

13. | DEBTORS ARISING OUT OF DIRECT INSURANCE OPERATIONS

|  | 2018 £000 |  |  | 2017 £000 |
Amounts falling due within one year |  |  |  |  |  |  |  |
Amounts due from non-group undertakings |  |  | 47 |  |  |  | 47 |
Amounts due from intermediaries—group undertakings |  |  | — |  |  |  | — |
|  |  | 47 |  |  |  | 47 |

14. | DEBTORS ARISING OUT OF REINSURANCE OPERATIONS

|  | 2018 £000 |  |  | 2017 £000 |
Amounts falling due within one year |  |  |  |  |  |  |  |
Amounts due from non-group undertakings |  |  | 2,719 |  |  |  | 11,450 |
Amounts due from group undertakings |  |  | 3,064 |  |  |  | 1,620 |
|  |  | 5,783 |  |  |  | 13,070 |

15. | OTHER DEBTORS INCLUDING TAXATION AND SOCIAL SECURITY

|  | 2018 £000 |  |  | 2017 £000 |
Amounts falling due within one year |  |  |  |  |  |  |  |
UK corporation tax receivable (refer Note 10(c)) |  |  | — |  |  |  | — |
Value added tax recoverable |  |  | 11 |  |  |  | 30 |
Amounts due from group undertakings |  |  | — |  |  |  | 1,267 |
Other debtors |  |  | — |  |  |  | — |
|  |  | 11 |  |  |  | 1,297 |

Page 37

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

16. | TANGIBLE ASSETS

|  | 2018 |
|  | Computer hardware £000 |  |  | Furniture/ fixtures/ fittings and office equipment £000 |  |  | Leasehold improvements £000 |  |  | Total £000 |
Book cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 1,777 |  |  |  | 235 |  |  |  | 801 |  |  |  | 2,813 |
At end of year |  |  | 1,777 |  |  |  | 235 |  |  |  | 801 |  |  |  | 2,813 |
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 1,742 |  |  |  | 233 |  |  |  | 801 |  |  |  | 2,776 |
Charge during year |  |  | 35 |  |  |  | 2 |  |  |  | — |  |  |  | 37 |
Eliminated on disposals during year |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
At end of year |  |  | 1,777 |  |  |  | 235 |  |  |  | 801 |  |  |  | 2,813 |
Net book value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At end of this year |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
At end of last year |  |  | 35 |  |  |  | 2 |  |  |  | — |  |  |  | 37 |

The Company’s tangible assets depreciation charge for the year ended 31 December 2017 was £148 thousand.

|  | 2017 |
|  | Computer hardware £000 |  |  | Furniture/ fixtures/ fittings and office equipment £000 |  |  | Leasehold improvements £000 |  |  | Total £000 |
Book cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 1,756 |  |  |  | 235 |  |  |  | 801 |  |  |  | 2,792 |
Additions during year |  |  | 21 |  |  |  | — |  |  |  | — |  |  |  | 21 |
Disposals during year |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
At end of year |  |  | 1,777 |  |  |  | 235 |  |  |  | 801 |  |  |  | 2,813 |
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 1,634 |  |  |  | 226 |  |  |  | 768 |  |  |  | 2,628 |
Charge during year |  |  | 108 |  |  |  | 7 |  |  |  | 33 |  |  |  | 148 |
Eliminated on disposals during year |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
At end of year |  |  | 1,742 |  |  |  | 233 |  |  |  | 801 |  |  |  | 2,776 |
Net book value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
At end of this year |  |  | 35 |  |  |  | 2 |  |  |  | — |  |  |  | 37 |
At end of last year |  |  | 122 |  |  |  | 9 |  |  |  | 33 |  |  |  | 164 |

The Company’s tangible assets depreciation charge for the year ended 31 December 2016 was £385 thousand.

Page 38

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

17. | DEFERRED ACQUISITION COSTS

|  | 2018 |
|  | Deferred acquisition costs £000 |  |  | Deferred profit commissions £000 |  |  | Total deferred acquisition costs £000 |
Gross |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 497 |  |  |  | 57 |  |  |  | 554 |
Exchange (gain)/loss on retranslation of brought forward balances from last to this year closing rates |  |  | 26 |  |  |  | — |  |  |  | 26 |
Increase/(decrease) during year (refer Note 7) |  |  | (427 | ) |  |  | (87 | ) |  |  | (514 | )
Exchange (gain)/loss on retranslation of in-year movement from average to closing rates |  |  | (16 | ) |  |  | (2 | ) |  |  | (18 | )
At end of year |  |  | 80 |  |  |  | (32 | ) |  |  | 48 |
Reinsurers’ share |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 21 |  |  |  | — |  |  |  | 21 |
Exchange (gain)/loss on retranslation of brought forward balances from last to this year closing rates |  |  | 1 |  |  |  | — |  |  |  | 1 |
Decrease during year (refer Note 7) |  |  | (19 | ) |  |  | — |  |  |  | (19 | )
Exchange (gain)/loss on retranslation of in-year movement from average to closing rates |  |  | (1 | ) |  |  | .— |  |  |  | (1 | )
At end of year |  |  | 2 |  |  |  | — |  |  |  | 2 |
|  | 2017 |
|  | Deferred acquisition costs £000 |  |  | Deferred profit commissions £000 |  |  | Total deferred acquisition costs £000 |
Gross |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 2,323 |  |  |  | 167 |  |  |  | 2,490 |
Exchange (gain)/loss on retranslation of brought forward balances from last to this year closing rates |  |  | (105 | ) |  |  | (3 | ) |  |  | (108 | )
Increase/(decrease) during year (refer Note 7) |  |  | (1,750 | ) |  |  | (109 | ) |  |  | (1,859 | )
Exchange (gain)/loss on retranslation of in-year movement from average to closing rates |  |  | 29 |  |  |  | 2 |  |  |  | 31 |
At end of year |  |  | 497 |  |  |  | 57 |  |  |  | 554 |
Reinsurers’ share |  |  |  |  |  |  |  |  |  |  |  |
At beginning of year |  |  | 61 |  |  |  | — |  |  |  | 61 |
Exchange (gain)/loss on retranslation of brought forward balances from last to this year closing rates |  |  | (4 | ) |  |  | — |  |  |  | (4 | )
Decrease during year (refer Note 7) |  |  | (37 | ) |  |  | — |  |  |  | (37 | )
Exchange (gain)/loss on retranslation of in-year movement from average to closing rates |  |  | 1 |  |  |  | — |  |  |  | 1 |
At end of year |  |  | 21 |  |  |  | — |  |  |  | 21 |

Page 39

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

18. | OTHER PREPAYMENTS AND ACCRUED INCOME

|  | 2018 £000 |  |  | 2017 £000 |
Prepaid other expenses |  |  | 113 |  |  |  | 260 |
|  |  | 113 |  |  |  | 260 |

19. | SHARE CAPITAL

|  | 2018 £000 |  |  | 2017 £000 |
Allotted, called up and fully paid 125,000,000 ordinary shares of £1 each |  |  | 125,000 |  |  |  | 125,000 |
Authorised 250,000,000 ordinary shares of £1 each |  |  | 250,000 |  |  |  | 250,000 |

The Company is a private company limited by shares and is incorporated in England. The address of its registered office is 5th Floor, 20 Fenchurch Street, London, EC3M 3BY, United Kingdom.

20. | ONEROUS LEASE

The Company had a non-cancellable lease on its former office location at 10th Floor, 2 Minster Court, London EC3R 7BB. The lease was for a 10 year period which commenced 23 May 2007 and expired on 22 May 2017.

On 31 December 2014, the Company vacated this former office location and remained liable for the remaining rental charges until the lease expired. Accordingly, a provision had been recognised and this comprised of: anticipated dilapidation costs from expiry; net of utilities recovered from the sublease of the former office location.

|  | 2018 |
|  | Future rental income and utilities recovered £000 |  |  | Future rental charges and dilapidation costs £000 |  |  | Total £000 |
At beginning of year |  |  | — |  |  |  | 335 |  |  |  | 335 |
Decrease during year |  |  | — |  |  |  | (335 | ) |  |  | (335 | )
At end of year |  |  | — |  |  |  | — |  |  |  | — |
|  | 2017 |
|  | Future rental income and utilities recovered £000 |  |  | Future rental charges and dilapidation costs £000 |  |  | Total £000 |
At beginning of year |  |  | (191 | ) |  |  | 324 |  |  |  | 133 |
Increase/(decrease) during year |  |  | 191 |  |  |  | 11 |  |  |  | 202 |
At end of year |  |  | — |  |  |  | 335 |  |  |  | 335 |

Page 40

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

21. | OTHER CREDITORS INCLUDING TAXATION AND SOCIAL SECURITY

|  | 2018 £000 |  |  | 2017 £000 |
Amounts falling due within one year |  |  |  |  |  |  |  |
Insurance premium tax payable |  |  | 3 |  |  |  | 3 |
Employment tax payable |  |  | — |  |  |  | 7 |
UK corporation tax payable (refer Note 10(c)) |  |  | 451 |  |  |  | 259 |
Other creditors—group undertakings |  |  | 216 |  |  |  | 135 |
|  |  | 670 |  |  |  | 404 |

22. | OTHER ACCRUALS AND DEFERRED INCOME

|  | 2018 £000 |  |  | 2017 £000 |
Accrued professional fees |  |  | 345 |  |  |  | 282 |
Accrued outsourcing fees |  |  | 49 |  |  |  | 151 |
Accrued rent |  |  | — |  |  |  | 35 |
Accrued other expenses |  |  | 242 |  |  |  | 579 |
|  |  | 636 |  |  |  | 1,047 |

23. | STAFF COSTS

(a) | Staff numbers

|  | 2018 Number |  |  | 2017 Number |
Average number of employees (including directors) employed during the financial year |  |  |  |  |  |  |  |
Underwriting |  |  | 1 |  |  |  | 2 |
Claims |  |  | 1 |  |  |  | 1 |
Risk |  |  | 2 |  |  |  | 2 |
Finance |  |  | 3 |  |  |  | 3 |
IT |  |  | 1 |  |  |  | 2 |
Administration, Human Resources and Compliance |  |  | 1 |  |  |  | 1 |
Management |  |  | 5 |  |  |  | 5 |
|  |  | 14 |  |  |  | 16 |

(b) | Staff costs

|  | 2018 £000 |  |  | 2017 £000 |
Aggregate payroll costs of employees (including directors) employed during the financial year |  |  |  |  |  |  |  |
Wages and salaries |  |  | 773 |  |  |  | 978 |
Social security costs |  |  | 87 |  |  |  | 88 |
Other pension costs |  |  | 46 |  |  |  | 61 |
|  |  | 906 |  |  |  | 1,127 |

The pension costs above represent the Company’s contributions to defined contribution pension schemes.

Page 41

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

24. | GUARANTEES, FINANCIAL COMMITMENTS AND CONTINGENT LIABILITIES

(a) | Guarantees

A credit facility with the Bank of Tokyo-Mitsubishi has been extended for USD 2,570 thousand, CAD 44 thousand, AUD 153 thousand and EUR 866 thousand at the end of the financial year (2017: USD 1,984 thousand, CAD 44 thousand and AUD 153 thousand) pursuant to the issuance of several letters of credit to policyholders/cedants in the United States of America, Canada and Australia.”

A credit facility with Mizuho Trust and Banking has been extended for USD 4,613 thousand at the end of the financial year (2017: USD 4,613 thousand) pursuant to the issuance of several letters of credit to policyholders/cedants in the United States of America.

(b) | Annual commitments

The Company has no annual commitments in respect of non-cancellable operating leases.

25. | RELATED PARTY TRANSACTIONS AND BALANCES

|  | 2018 |  |  | 2017 |
|  | Balances Net Debtor/ (Creditor) £000 |  |  | Balances Net Debtor/ (Creditor) £000 |
Wholly-owned by Tokio Marine Holdings Inc |  |  |  |  |  |  |  |
Tokio Millennium Re AG |  |  | (216 | ) |  |  | (135 | )
Kiln Underwriting Limited |  |  | (451 | ) |  |  | 1,242 |
Tokio Marine Kiln Insurance Services Limited |  |  | — |  |  |  | 25 |
Syndicate 1880 managed by Tokio Marine Kiln Syndicates Limited |  |  | 530 |  |  |  | 593 |

|  | 2018 |  |  | 2017 |
|  | Transactions Net Income/ (Expense) £000 |  |  | Balances Net Debtor/ (Creditor) £000 |  |  | Transactions Net Income/ (Expense) £000 |  |  | Balances Net Debtor/ (Creditor) £000 |
Partially-owned by Tokio Marine Holdings Inc |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Syndicate 510 managed by Tokio Marine Kiln Syndicates Limited |  |  | 552 |  |  |  | 2,487 |  |  |  | 11,326 |  |  |  | 1,027 |

26. | IMMEDIATE AND ULTIMATE PARENT UNDERTAKINGS

Tokio Marine & Nichido Fire Insurance Co. Ltd. (Japan) is the immediate parent. This company’s registered office is located at 2-1 Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8050, Japan.

Tokio Marine Holdings Inc. (Japan) is the ultimate controlling party and parent undertaking of the largest group of undertakings to consolidate these financial statements for the current year end. This company’s registered office is located at Tokyo Kaijo Nichido Building Shinkan 13F, 1-2-1 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan.

Tokio Marine & Nichido Fire Insurance Co. Ltd. (Japan) is the parent undertaking of the smallest group of undertakings to consolidate these financial statements.

Copies of both companies’ financial statements are available from the addresses provided above.

Page 42

|  | NOTES TO THE FINANCIAL STATEMENTS TOKIO MILLENNIUM RE (UK) LIMITED

27. | EVENTS AFTER THE REPORTING PERIOD

The Company has completed its review of events after the Statement of Financial Position date of 31 December 2018 through 22 March 2019, the date the consolidated financial statements were authorised for issue. There were no events that would warrant an adjustment to the consolidated financial statements.

On 30 October 2018, RenaissanceRe Holdings Ltd. (“RenRe”) announced that it has entered into a definitive agreement with Tokio Marine Holdings, Inc. (“TMHD”) pursuant to which an affiliate of RenRe will acquire TMHD’s reinsurance platform, which includes Tokio Millennium Re AG and Tokio Millennium Re (UK) Limited (collectively, “TMR”). Under the terms of the transaction, TMHD will receive 1.02x the tangible book value of TMR delivered to RenRe at closing. If closing tangible book value is unchanged from June 30, 2018, Tokio Marine would receive approximately $1.5 billion in total consideration, consisting of cash and RenRe common shares.

28. | UK TO US GAAP RECONCILIATION

The Company prepares its financial statements in accordance with generally accepted accounting practice in the United Kingdom (‘UK GAAP’), which differ in certain respects from accounting principles generally accepted in the United States of America (‘US GAAP’). Reconciliations of profit for the financial year (or net income) and shareholders’ funds (or shareholders’ equity) as reported in the financial statements under UK GAAP and those under US GAAP are set out below:

|  | 2018 |  |  | 2017 |
|  | Profit & Loss £000 |  |  | Total Equity £000 |  |  | Profit & Loss £000 |  |  | Total Equity £000 |
Results under UK GAAP |
Profit for the year |  |  | 2,146 |  |  |  | — |  |  |  | 6,658 |  |  |  | — |
Total equity |  |  | — |  |  |  | 206,669 |  |  |  | — |  |  |  | 204,523 |
US GAAP Reporting adjustments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unearned premium (“UPR”) revaluation adjustment |  |  | (197 | ) |  |  | (75 | ) |  |  | (917 | ) |  |  | (367 | )
Deferred acquisition cost (“DAC”) revaluation adjustment |  |  | 60 |  |  |  | 9 |  |  |  | 240 |  |  |  | 85 |
Tax effect of US GAAP changes |  |  | 26 |  |  |  | 12 |  |  |  | 137 |  |  |  | 57 |
Results under US GAAP |  |  | 2,035 |  |  |  | 206,615 |  |  |  | 6,118 |  |  |  | 204,298 |

Classification differences between UK and US GAAP

In addition to the differences between UK GAAP and US GAAP related to the recognition and measurement of transactions by the Company, there are also a number of differences in the manner in which items are classified in the profit and loss account and statement of financial position. These classification differences have no impact on net income, shareholders’ equity and statement of cash flows.

Under UK GAAP UPR and DAC are revalued at the prevailing closing foreign exchange rate. Under US GAAP nonmonetary items are recorded at the historic foreign exchange rate.

Under UK GAAP, the statement of financial position is presented in ascending order of liquidity, whereas under US GAAP assets are presented in descending order of liquidity. Also under UK GAAP, the statement of financial position is ordinarily analysed between net assets and total equity. Under US GAAP, the analysis is between total assets and total liabilities plus shareholder’s equity.

Under US GAAP, the analysis is between total assets and total liabilities plus shareholder’s equity. Under UK GAAP non-monetary items are revalued at the prevailing closing foreign exchange rate. Under US GAAP nonmonetary items are recorded at the historic foreign exchange rate.

Page 43