ANNUAL REPORT 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31 December 2013 and 2012 (Expressed in United States Dollars)
The following table shows premiums receivable that are past due but not impaired:
2013 2012
US$’000 US$’000
Less than 90 days past due $ 4,550 $ 1,107
Between 91 and 180 days past due 370 97
Over 180 days past due 463 69
Total $ 5,383 $ 1,273
TMR AG does not embrace significant credit risk and therefore invests in highly-rated bonds to limit the amounts of credit exposure with respect
to particular rating categories and any one issuer.
TMR AG is also exposed to various counterparty credit risks in the course of conducting its underwriting activities. For example, it may have a
significant amount of premiums receivables held by its brokers, clients or retrocessionaires. It may have posted funds or collateral with clients or other
parties as required by the reinsurance contracts. It may have cash deposits in a number of banking institutions. A retrocessionaire may fail to meet
its obligations under the retrocession contracts.
This type of credit risk is called counterparty credit risk, which is modeled as a set of frequency-severity distributions resulting from the scenario
analyses conducted and maintained by the ERM unit using TMR AG’s risk register.
To control and mitigate counterparty credit risk, the rules of the Risk Appetite and Risk Limit policy concerning counterparty credit risk apply.
Most of the retrocessions are either collateralised or placed with highly-rated reinsurers. TMR AG transacts most of its reinsurance businesses
through major and reputable brokers and spreads its cash deposits across a number of reputable commercial banks.
In addition, a retrocession arrangement may be made with a retrocessionaire who does not meet the criteria in the Risk Appetite and Risk Limit Policy
if collateral with an equivalent or better rating than the minimum A- rating is obtained for an amount at least equal to 100% of the retroceded limit.
As at 31 December 2013, the Company’s credit risk exposure in relation to losses recoverable from unrated counterparties to reinsurance ceded
agreements is $30.7 million (2012 – $76.1 million), which is fully collateralised by letters of credit and assets held in trusts by the reinsurance
counterparty for the benefit of the Company.
As at 31 December 2013, the Company’s exposure to credit risk of the counterparties to catastrophe swap agreements is $14.0 million
(2012 – $11.5 million), which is fully collateralised by letters of credit and assets held in trusts by the reinsurance counterparty for the benefit
of the Company.
D. Liquidity risk
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 of value.
TMR AG aims to keep liquidity risk as low as possible so that the Company will be able to meet its contractual obligations in a timely manner,
even under stressed scenarios such as following a major catastrophic event.
Liquidity risk can be an outcome or consequence of the Company’s exposures to catastrophe risk and market risk. However, for the purpose
of monitoring risk limits, liquidity risk is included in and shares the risk limit with the market risk category.
TMR AG’s investment policy puts the safety and liquidity of its invested assets before and above its pursuit of investment earnings. The Company
holds a significant amount of its assets in cash, cash equivalents and other short term investments. In addition, its other investments are mainly
composed of fixed interest securities such as US Treasury and agency bonds, high-rated corporate bonds, asset-backed securities and mortgage
backed securities issued by US government-sponsored agencies. Almost all of these fixed interest securities are of high credit quality and most
of them are also highly liquid and can be sold on the open market quickly with little or no impact on prices.
TOKIO MILLENNIUM RE | ANNUAL REPORT 2013 45