<Page>
EXHIBIT 99(F)
THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF SIRIUS INSURANCE HOLDING SWEDEN AB AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 2003
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders in
Sirius Insurance Holding Sweden AB
We have audited the accompanying consolidated balance sheet of Sirius
Insurance Holding Sweden AB (the "Company") as of December 31, 2003 and the
related consolidated statement of income, changes in stockholder's equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Sirius Insurance Holding Sweden AB as of December 31, 2003 and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the
United States of America.
/s/ PricewaterhouseCoopers AB
Stockholm, Sweden
June 28, 2004
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Consolidated Balance Sheet
December 31, 2003
(In thousand Swedish krona)
<Table>
ASSETS
INVESTMENTS
Fixed maturities available for sale at fair value
(amortized cost 10,170,403) 10,142,792
Equity securities trading at fair value (cost 1,841,263) 1,694,393
Investments in limited partnerships 639,277
Short term investments 273,362
-----------------
TOTAL INVESTMENTS 12,749,824
Cash and cash equivalents 1,251,529
Accrued investment income 174,991
Premium and other receivables 1,277,151
Reinsurance recoverable on paid and unpaid losses
and loss adjustment expenses 2,103,979
Prepaid reinsurance premiums 516,106
Funds held by reinsured companies 6,541,696
Deferred acquisition costs 189,309
Property and equipment 65,041
Goodwill 520,071
Other assets 73,525
-----------------
TOTAL ASSETS 25,463,222
=================
</Table>
SEE ACCOMPANYING NOTES
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Consolidated Balance Sheet
December 31, 2003
(In thousand Swedish krona)
<Table>
LIABILITIES
Unpaid losses and loss adjustment expenses 12,021,864
Reserve for unallocated loss adjustment expenses 152,472
Reserve for structured contracts 4,095,116
Unearned premiums 1,610,159
Ceded premiums payable 80,237
Reinsurance payable on losses and loss adjustment expenses 618,565
Accounts payable and accrued liabilities 124,897
Amounts withheld for account of others 54,401
Funds withheld on reinsurance treaties 178,517
Deferred tax liabilities 2,074,663
Payable to affiliates 328,141
Other liabilities 107,382
---------------
TOTAL LIABILITIES 21,446,414
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock (par value SEK 100 per share, authorized,
issued and outstanding 1,000 shares) 100
Retained earnings 3,351,933
Accumulated other comprehensive income 664,775
---------------
TOTAL STOCKHOLDER'S EQUITY 4,016,808
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 25,463,222
===============
</Table>
SEE ACCOMPANYING NOTES.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Consolidated Statement of Income
January 1, 2003 -
December 31, 2003
(In thousand Swedish krona)
<Table>
REVENUES
Premiums written 5,732,066
Premiums ceded -1,587,675
---------------
Net Premiums earned 4,144,391
Net investment income 804,763
Net realized investment gains 92,744
Net unrealized gains on trading securities 375,298
---------------
TOTAL REVENUES 5,417,196
EXPENSES
Loss and loss adjustment expenses -3,535,773
Commission and brokerage fees -825,949
Increase in deferred acquisition cost 1,788
General expenses -467,926
---------------
TOTAL EXPENSES -4,827,860
---------------
INCOME BEFORE INCOME TAX EXPENSE 589,336
---------------
Income tax expense 246,060
---------------
NET INCOME 343,276
===============
</Table>
SEE ACCOMPANYING NOTES.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Consolidated Statement of Changes in Stockholder's Equity
December 31, 2003
(In thousand Swedish krona)
<Table>
<Caption>
COMMON STOCK RETAINED ACCUMULATED TOTAL STOCK- COMPRE-
EARNINGS OTHER COMPRE- HOLDER'S HENSIVE
HENSIVE INCOME EQUITY INCOME
--------------------------------------------------------------------
BALANCE JANUARY 1, 2003 100 5,290,327 735,997 6,026,424
Comprehensive income
Net income 343,276 343,276 343,276
Other comprehensive income:
Net unrealized losses on
investments (net of tax) -29,948 -29,948
Foreign currency translation
adjustment (net of tax) -41,274 -41,274
---------------------------------------------------------- ---------
TOTAL OTHER COMPREHENSIVE INCOME -71,222 -71,222
---------------------------------------------------------- ---------
TOTAL COMPREHENSIVE INCOME 272,054
Dividend paid including group
contribution -2,281,670 -2,281,670
---------------------------------------------------------- ---------
BALANCE DECEMBER 31, 2003 100 3,351,933 664,775 4,016,808 272,054
====================================================================
</Table>
SEE ACCOMPANYING NOTES.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Consolidated Statement of Cash Flows
January 1, 2003 -
December 31, 2003
(In thousand Swedish krona)
<Table>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 343,276
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation of fixed assets and amortization of intangibles 16,207
Amortization of premium & discount on fixed maturities 85,159
Net realized investment gains -92,744
Unrealized gains on trading securities -375,298
Proceeds from sales of trading securities 2,496,313
Purchases of trading securities -2,527,893
Change in short term investments -266,770
Change in accrued investment income 9,297
Change in premium and other receivables 290,772
Change in provision for bad debts 81,531
Change in reinsurance recoverable on paid and unpaid losses and LAE 12,262
Change in prepaid reinsurance premiums 75,889
Change in funds held by reinsured companies 2,158,076
Change in deferred acquisition costs -21,053
Change in other assets 49,574
Change in unpaid losses and LAE -1,474,452
Change in reserve for structured contracts -328,342
Change in unearned premiums 158,885
Change in ceded premiums payable 6,421
Change in reinsurance payables on losses and LAE -399,227
Change accounts payables and acrued liabilities -27,410
Change in amounts held for the account of others 28,073
Change in funds withheld on reinsurance treaties -25,557
Change in net deferred taxes 101,300
Change in employment benfit plans 8,862
Change in balances due to/from affiliates -9,900
Change in other liabilities 107,383
--------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 480,634
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of fixed maturities 20,782,604
Purchases of fixed maturities -20,333,137
Proceeds from sales of limited partnerships 127,017
Purchases of limited partnerships -21,237
Purchases of property and equipment -40,798
Disposal of businesses 82
--------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 514,531
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid and repayment of capital contribution -2,047,000
Group contributions paid -110,514
Loans proceeds 1,451,080
Loan repayment -1,451,080
--------------
NET CASH USED IN FINANCING ACTIVITIES -2,157,514
Net decrease in cash and cash equivalents -1,162,349
Cash and cash equivalents, beginning of year 2,648,338
Changes in cash and cash equiv. due to changes in foreign exchange rates -234,460
--------------
CASH AND CASH EQUIVALENTS, END OF YEAR 1,251,529
==============
Interest Paid (net of amounts capitalized) 313,253
Income taxes paid 72,630
</Table>
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
1. ORGANIZATION
ABB Insurance Holding Sweden AB (subsequently renamed Sirius Insurance Holding
Sweden AB) (the "Company") is a wholly owned subsidiary of ABB Holding AG,
Switzerland, which is ultimately owned by ABB Ltd., Switzerland ("ABB"). On
January 15, 2003, the Company acquired Sirius International Insurance
Corporation ("Sirius International") from the previous owner ABB Financial
Services AB by permission of the Swedish Financial Supervisory Authority.
The Company was incorporated on November 13, 2002 under the laws of Sweden. The
Company did not conduct any business prior to the acquisition of Sirius
International and Sirius Ruckversicherungs Service GmbH (Sirius Ruck). The
accompanying Consolidated Financial Statements includes the accounts for Sirius
Ruck and Sirius International and its subsidiaries, Sirius America Insurance
Company ("Sirius America"), Scandinavian Reinsurance Company Ltd ("Scandinavian
Re") and Sirius Belgium Reassurances S.A., ("Sirius Belgium") (collectively
called the Sirius Group). In August 2003, Sirius International sold its
participation of Tre Kronor Kapital AB to ABB AB, Sweden. Sirius International
writes business outside Sweden through its various branch offices located in
London, Zurich, Singapore, Labuan and Liege. The operations in Germany are
conducted through the agency, Sirius Ruck.
During 2001, a voluntary liquidation of Sirius Reassurances Belgium S.A., Liege,
Belgium was commenced, as the company is no longer in active operation. The
liquidation is expected to be finalized in the next two to three years.
Effective December 9, 2003, ABB entered into a sale and purchase agreement to
sell all its shares of the Company to the White Mountains Insurance Group Ltd.
On April 16, 2004 all the shares in The Company were acquired by Fund American
Holdings AB, in accordance with the sale and purchase agreement signed December
9, 2003.
In order to reorganise the new group Sirius International acquired Fund
American Reinsurance AB from a subsidiary of White Mountains, Folksamerica
Reinsurance Company, on May 5th. Sirius International's subsidiary Sirius
America was sold to Folksamerica Reinsurance Company on April 16.
ACQUISITION AND DISPOSAL
On January 15, 2003 the Company acquired the Sirius Group for a consideration of
411,700. In August 2003 Tre Kronor Kapital AB was sold to ABB, Sweden for
consideration of 82. At the time of the sale the Company did not conduct any
business.
In accordance with Statement of Financial Accounting Standards No. 141,
("SFAS No. 141"), Business Combinations, the Company accounted for its
acquisition of the Sirius Group from another company under common control,
similar to the pooling method. As such, the results of operations for the
year ended December 31, 2003 are reported as though the acquisition had
occurred at the beginning of the period. Similarly, the Company has presented
the balance sheet (beginning equity) and other financial information as of
January 1, 2003 as though the assets and liabilities had been transferred at
that date.
NATURE OF OPERATIONS
The Company's insurance and reinsurance activities are conducted through the
Sirius Group. Sirius International, which is the parent company of the Sirius
Group, was established in 1989. Insurance operations, however, commenced in
1945, in the Sirius Insurance Company Ltd. The reinsurance activities were
transferred to Sirius International in 1989. Sirius International has been the
parent company of the Sirius Group since 1992.
The Company's gross premium is written in Europe (30%), North America (61%),
Asia (6%), and other countries (3%). Sirius America accounted for 30% of the
gross premium written, which represents program business written in the United
States of America through various program managers and general agents. Sirius
International writes reinsurance and commercial insurance and is licensed to
write all classes of non-life reinsurance and underwrites a global portfolio of
treaty and facultative business on proportional and non-proportional bases. The
excess of loss account represents a very important and growing part of the
reinsurance portfolio, where the main focus is on catastrophe business. The
majority of the reinsurance assumed is from foreign companies. Sirius
International's portfolio also consists of a large accident and health business.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
Throughout the fourth quarter 2003 Sirius International was also operating in
certain insurance markets, especially Financial Risks. Since the autumn 2003
Financial Risks ceased writing new business.
Scandinavian Re wrote a variety of finite risk reinsurance programs such as
surplus relief, prospective aggregate covers, funded excess of loss covers and
loss portfolio transfers. In January 2002, Scandinavian Re ceased assuming new
or renewal business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The significant accounting policies followed by the Company
are summarized below:
PRINCIPLES OF CONSOLIDATION
All intercompany accounts and transactions have been eliminated and all
subsidiaries have been included in the consolidation.
USE OF ESTIMATES
The Consolidated Financial Statements include amounts based on informed
estimates and judgments of management for those transactions that are not yet
complete or for which the ultimate effects cannot be precisely determined. Such
estimates and judgments affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PREMIUMS
Premiums are generally earned on a daily pro-rata basis over the terms of the
policies. Unearned premiums represent the portion of premiums written, which is
applicable to the unexpired risks under contract in force. Written and earned
premiums which have not yet been reported to the Company are estimated and
accrued.
To the extent that the Company's contracts permit a retrospective charge to the
ceding company for additional premiums, such premiums are accrued as premiums
receivable based on experience under the contract and income is recognised over
the lifetime of the contract.
LIABILITIES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses and loss adjustment expenses (LAE) includes estimates
of unpaid claims, losses and LAE and an estimate for losses incurred but not
reported (IBNR) at the balance sheet date. The Company records liabilities for
unpaid claims, losses, and related LAE based upon management's best estimate of
aggregate case-by-case basis estimates for losses reported and estimates
received from ceding reinsurers. Reserves for IBNR are established using various
statistical and actuarial techniques reflecting historical patterns of
development of paid and reported losses adjusted for current trends.
The Company's analysis of the reasonableness of loss or LAE reserve estimates
includes an analysis of the amount of variability in the estimate. The Company
develops its estimate considering a range of reserve estimates bounded by a high
and a low estimate. The high and low ends of the range do not correspond to an
absolute best-and-worst case scenario of ultimate settlements because such
estimates may be the result of unlikely assumptions.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
Management's best estimate therefore does not include the set of all possible
outcomes but only those outcomes that are considered reasonable. Those estimates
are subject to the effects of trends in loss severity and frequency, and
considerable variability is inherent in such estimates. The estimates are
regularly reviewed and adjusted as necessary as experience develops or new
information becomes known; such adjustments are included in current
operations.
The Company records its liability for losses net of anticipated salvage and
subrogation recoveries. Salvage and subrogation received and changes in
estimates of future recoveries are recorded in current year underwriting
results.
DEFERRED ACQUISITION COSTS
Policy acquisition costs, consisting of commissions and certain other
underwriting expenses, that vary with and are primarily related to the
production of new business are deferred and amortized over the contract periods
in which the related premiums are earned. The amortization during 2003 amounted
to 195,011.
CEDED REINSURANCE
Ceded reinsurance premiums, losses recoverable, and LAE recoverable are
accounted for on a basis consistent with the accounting for the original
policies issued and the terms of the reinsurance contracts. All assets and
liabilities related to reinsurance ceded contracts are reported on a gross basis
in the Consolidated Balance Sheet. The Consolidated Statement of Income reports
premiums, benefits and settlement expenses net of reinsurance ceded.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured business. The Company
evaluates and monitors the financial condition of reinsurers to minimize
exposure to significant losses from reinsurer insolvencies.
RESERVE FOR STRUCTURED CONTRACTS
The reserve for structured contracts represents deposit liabilities for
reinsurance contracts that do not satisfy the conditions for reinsurance
accounting established in SFAS 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" (hereafter referred to as structured
contracts).
For insurance and reinsurance contracts that transfer only significant timing
risk or that transfer neither significant timing risk nor significant
underwriting risk, the amount of the deposit asset or liability is adjusted at
the balance sheet date by calculating the effective yield on the deposit to
reflect actual payments to date and expected future payments. Changes in the
carrying amount of the deposit are reported as a component of investment income.
Fees related to these contracts are recorded as investment income and are earned
using the effective yield method or evenly over the life of the contract
dependent upon contract terms.
FUNDS HELD BY REINSURED COMPANIES
Under the terms of certain assumed reinsurance agreements, both risk bearing and
non-risk bearing, the ceding insurer retains a portion of the premium to provide
security against future loss payments. The funds withheld are generally invested
by the ceding insurer and earn interest credits, recorded by the Company as
investment income, that become additional funds withheld.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
INVESTMENTS
Short-term investments are those with a maturity of greater than three months
but less than one year from date of purchase. Short-term investments are
recorded at cost, which approximates fair value.
Fixed maturity investments are classified as "available-for-sale" and are
carried at fair value, based on quoted market prices, with the difference
between amortized cost and fair value, net of effect of taxes, included as a
separate component of "accumulated other comprehensive income". Equity
securities are classified as "trading securities" and are carried at fair value,
based on quoted market prices, with the change in fair value included in the net
unrealized investment gains and losses in the Consolidated Statement of Income.
Equity securities include listed shares, public equity funds and hedge funds.
Investments in limited partnerships, which mainly consist of private equity
funds, are accounted for under the equity method. Investment income is recorded
when earned and includes accrual of discount or amortization of premium on fixed
maturities.
Realized investment gains and losses on the sale of investments are determined
on the specific identification method, with the exception for the equity
portfolio in Sirius International where the average cost method is used, and are
included in the accompanying Consolidated Statement of Income.
The Company regularly evaluates the fair value of its investments to determine
whether a decline in fair value below the amortized cost basis is
other-than-temporary. If the fair value is judged to be other-than-temporary,
the amortized cost of the individual security is written-down to fair value as
the new cost basis, and the amount of the write-down is included as realized
investment loss in the period in which the determination of other-than-temporary
impairment is made.
DERIVATIVES
The Company is exposed to the movements of a large number of currencies in
relation to Swedish krona. Currency forward contracts are used to reduce this
exposure and to deal with the cash flow in various currencies. Interest rate
futures are employed to spread interest rate risks over the full yield curve.
In addition, stock index futures and stock futures are used to hedge the risk
in stock prices.
Currency risk, interest rate risk and stock price risk are measured and
evaluated continuously by the Company's investment managers, as well as by
the Company, to ensure that risk limits are not exceeded. All derivatives
mentioned above are marked to market and recorded on the Consolidated
Balance Sheet at fair value with changes in fair value reported in earnings.
GOODWILL
The Company records goodwill arising from the acquisition of its reporting
subsidiaries in the balance sheet. Annually, the Company performs a review and
tests for impairment of goodwill under SFAS 142 "Goodwill and Other Intangible
Assets". This guideline requires that potential impairments are identified by
comparing the fair value of each reporting unit to its carrying amount,
including goodwill. Goodwill is not considered impaired as long as the fair
value of the unit is greater than its carrying value. There were no changes
between December 31, 2002 and December 31,2003.
INCOME TAXES
Taxes are calculated individually for each company in accordance with the tax
rules in the respective countries. Current taxes also include non-deductible
withholding taxes on dividend income. The foreign branches are taxed
individually on their results in their respective countries.
In Sweden, Sirius International is taxable for its total income, inclusive of
the results from foreign branches. When the company pays taxes in Sweden on
overseas income, a tax credit allowance is granted for the taxes paid abroad to
avoid double taxation.
Deferred income tax assets and liabilities are recognized for the expected
future tax effects attributable to temporary differences between the financial
reporting and tax bases of assets and liabilities, based on enacted tax rates
and other provisions of tax law. The effect of a change in tax laws or rates is
recognized in net income in the period in which such change is enacted.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company is the Swedish krona. The national
currencies of the subsidiaries are their functional currencies since their
business is primarily transacted in such local currency. In translating the
financial statements of those subsidiaries whose functional currency is other
than the Swedish krona, assets and liabilities are converted into Swedish krona
using the exchange rate in effect at the balance sheet date, and revenues and
expenses are converted using the average exchange rates for the period. Related
translation adjustments are reported as a separate component of Accumulated
Other Comprehensive Income.
Assets and liabilities relating to foreign operations are translated into the
functional currency using current exchange rates; revenues and expenses are
translated into the functional currency using the exchange rate of the
transaction day. The resulting exchange gain and losses are included in the
Consolidated Statement of Income and amounts to a loss of 98,165. The following
rates of exchange for Swedish krona have been used for the most significant
operations:
<Table>
<Caption>
CURRENCY OPENING RATE 2003 CLOSING RATE 2003
---------------------------------------------------------
U.S. dollar 8.78 7.26
Euro 9.15 9.07
Pound sterling 14.08 12.88
</Table>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Property represent office space utilized by Sirius International
in Belgium, which is amortized using the straight line method over 20 years and
retreat facilities in Sweden for the use of employees, which is amortized using
the straight-line method over 50 years. Fixed assets include machinery,
equipment and office furniture and are depreciated using the straight-line
method over 5 years.
External direct and incremental costs of 37,440 incurred in developing or
obtaining computer software for internal use were capitalized for the year ended
December 31, 2003. These costs are presented in property and equipment and are
being amortized using the straight-line method over their estimated useful
lives, generally three years.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash consists of amounts held at banks,
cash in money market accounts and time deposits with original maturities of
three months or less.
SHORT-TERM INVESTMENTS
The carrying value of short-term investments, which are included under this
caption, approximates the fair value due to the short maturities of these
investments.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which addresses consolidation issues
surrounding special purpose entities and certain other entities, collectively
termed variable interest entities ("VIE"), to which the usual condition for
consolidation does not apply. A VIE is an entity in which the equity investors
do not have the characteristics of a controlling interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Under FIN 46, the
primary beneficiary of a VIE is required to consolidate the VIE in its financial
statements. The primary beneficiary is the entity that has a variable interest
that will absorb the majority of the VIE's expected losses or receive a majority
of the entity's expected residual returns or both.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
FIN 46 was effective immediately for new VIEs established or purchased
subsequent to January 31, 2003. For VIEs entered into prior to February 1, 2003,
additional disclosure requirements were effective for financial statements
issued after January 31, 2003.
On December 24, 2003, the FASB published a revision to FIN-46, ("FIN 46R")
deferring the effective date for applying the provisions of FIN 46. Under FIN
46R, a nonpublic entity with an interest in an entity that is subject to this
Interpretation and that is created after December 31, 2003, must apply the
Interpretation to that entity immediately, and to all other entities by the
beginning of the first annual period ending after December 15, 2004. The Company
has not identified any interests in VIEs which it would be required to
consolidate under FIN 46.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150), which requires an issuer of mandatorily redeemable financial instruments
to classify such instruments as a liability and to measure such liability at its
present value using the rate implicit at the inception of the contract. In
addition, all future dividends paid to holders of those instruments, are to be
reported as interest expense. SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003.
For financial instruments created before the issuance date of SFAS No. 150 and
still existing at the beginning of the interim period of adoption, transition is
achieved by reporting the difference between the measurement of liability upon
adoption and the previous carrying value as the cumulative effective of a change
in accounting principle. At present, the Company has not issued any such
instruments.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS. This interpretation expands the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
clarifies the requirements of SFAS No. 5, ACCOUNTING FOR CONTINGENCIES, (SFAS 5)
relating to guarantees. In general, FIN 45 applies to contracts or
indemnification agreements that contingently require the guarantor to make
payments to the guaranteed party based on changes in an underlying that is
related to an asset, liability, or equity security of the guaranteed party.
Certain guarantee contracts are excluded from both the disclosure and
recognition requirements of this interpretation, including, among others,
guarantees relating to employee compensation, residual value guarantees under
capital lease arrangements, commercial letters of credit, loan commitments,
subordinated interests in a special purpose entity, and guarantees of a
company's own future performance. Other guarantees are subject to the disclosure
requirements of FIN 45 but not to the recognition provisions and include, among
others, a guarantee accounted for as a derivative instrument under SFAS 133, a
parent's guarantee of debt owed to a third party by its subsidiary or vice
versa, and a guarantee which is based on performance not price.
The recognition requirements of FIN 45 are to be applied prospectively to
guarantees issued or modified after December 31, 2002. As of December 31, 2003
the Company has not issued any significant guarantees. The adoption of FIN 45
did not have a material impact.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
3. INVESTMENTS
At December 31, 2003 all of the Company's fixed maturities are investment grade.
The Company is not exposed to any significant concentrations of credit risk
within the fixed maturity portfolio. Approximately 89% of this portfolio is
invested in securities with an S&P rating of AA or better.
The amortized cost and fair value of fixed maturities and the cost and fair
value of equity securities at December 31, 2003 were as follows:
<Table>
<Caption>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST OR COST GAINS LOSSES FAIR VALUE
----------------------------------------------------------------------------
Fixed maturities
Swedish Government 3,464,507 6,616 -34,343 3,436,780
Swedish mortgage institutions 1,016,532 11,651 -11 1,028,172
Foreign governments 5,054,344 15,857 -33,469 5,036,732
Other foreign issuers 403,113 8,594 -2,987 408,720
Mortgage-backed securities 231,907 481 0 232,388
----------------------------------------------------------------------------
Total fixed maturities 10,170,403 43,199 -70,810 10,142,792
Equity securities 1,841,263 126,007 -272,877 1,694,393
----------------------------------------------------------------------------
TOTAL FIXED MATURITIES AND EQUITY SECURITIES 12,011,666 169,206 -343,687 11,837,185
============================================================================
</Table>
At December 31, 2003, fixed maturities and cash and short-term investments
carried at 207,925, were on deposit with regulatory authorities as required by
law. At December 31, 2003, none of the fixed maturities has had a fair value
below cost for more than six months.
The amortized cost and fair value of fixed maturities at December 31, 2003 by
contractual maturity were as follows:
<Table>
<Caption>
AMORTIZED FAIR
COST VALUE
--------------------------------
Due in one year or less 2,975,462 2,978,563
Due after one year through five years 4,752,061 4,752,691
Due after five years through ten years 1,454,010 1,441,746
Due after ten years 756,963 737,403
--------------------------------
9,938,496 9,910,403
Mortgage-backed securities 231,907 232,389
--------------------------------
TOTAL 10,170,403 10,142,792
================================
</Table>
The expected maturities in the forgoing table may differ from the contractual
maturities because certain borrowers have the right to call or prepay the
obligation with or without call or prepayment penalties.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
The analysis of the net unrealized appreciation or depreciation on available for
sale investments contained in "accumulated other comprehensive income", December
31, 2003 were as follows:
<Table>
Fixed maturities
Gross unrealized gains 43,198
Gross unrealized losses -70,810
--------------
-27,612
Deferred income tax liability -11,399
--------------
NET UNREALIZED LOSS -39,011
==============
</Table>
The changes in unrealized gains or losses of fixed maturities during the year
were as follows:
<Table>
Change in unrealized gains or losses of fixed maturities -176,522
Deferred income tax 31,469
--------------
TOTAL -145,053
==============
</Table>
The changes in reclassification of accounting in equity securities during the
year were as follows:
<Table>
Reclassification of accounting for gain/loss in equity securities 115,766
Deferred income tax -661
--------------
TOTAL 115,105
==============
</Table>
The sources of net investment income for the year ended December 31, 2003 :
<Table>
Fixed maturities 636,630
Equity securities 34,302
Income from limited partnerships 61,343
Income from deposit accounting contracts and other 306,945
Provision for investment loss in securities LUC -101,067
--------------
GROSS INVESTMENT INCOME 938,153
Less: investment expenses -133,390
--------------
NET INVESTMENT INCOME 804,763
==============
</Table>
Realized investment gains and losses for the year ended December 31, 2003 were
as follows:
<Table>
Gross realized investment gains
Fixed maturities 130,282
Equity securities 277,435
--------------
407,717
Gross realized investment losses
Fixed maturities -44,282
Equity securities -270,691
--------------
-314,973
--------------
NET REALIZED INVESTMENT GAINS 92,744
==============
</Table>
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
4. PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation, as of December 31, 2003
was as follows:
<Table>
<Caption>
PROPERTY FIXED ASSETS CAPITALIZED TOTAL
SOFTWARE
-------------------------------------------------------------------------
Cost 21,616 79,931 53,253 154,800
Accumulated depreciation and amortization -8,626 -65,320 -15,813 -89,759
-------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 12,990 14,611 37,440 65,041
=========================================================================
</Table>
Depreciation and amortization of property and equipment aggregated approximately
16,207, during the year ended December 31, 2003.
5. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
A reconciliation of the beginning and ending liability for unpaid losses and
LAE, net of reinsurance recoverable, and a reconciliation of the net liability
to the corresponding liability on a gross basis for the year ended December 31,
2003 was as follows
<Table>
Gross liability, beginning of year 15,868,979
Reinsurance recoverable, beginning of year 2,545,625
--------------
NET LIABILITY, BEGINNING OF YEAR 13,323,354
Net incurred losses and LAE related to:
Current year 1,505,087
Prior years 2,030,685
--------------
3,535,772
Net payments for losses and LAE related to :
Current year 206,138
Prior years 4,901,949
--------------
5,108,087
Currency revaluation effect -1,820,820
--------------
NET LIABILITY, END OF YEAR 9,930,219
Reinsurance recoverable, end of year 2,091,645
--------------
GROSS LIABILITY, END OF YEAR 12,021,864
==============
</Table>
During 2003, the Company experienced overall unfavorable development of
2,030,685 in relation to prior years reserve. Scandinavian Re adverse
development of 1,357,096 accounted for the majority of the unfavorable
development. Scandinavian Re earned additional revenues of 687,622 as a results
of adverse development on certain contracts. The adverse development is
attributable to revised actuarial assessments based on current data, and to
additional losses reported by cedants on certain contracts.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
Sirius International adverse development on prior years liabilities amount to
654,871. Late reporting on some accident & health contracts is the main
contributing factor. The bulk of this increase has been mitigated by additional
premiums. In addition, various losses on commutations within the discontinued
Film Financing area impacted the loss incurred on prior years contracts.
At December 31, 2003, the claims and claim adjustment expense reserves net of
reinsurance recoveries included 71,500 for asbestos and environmental-related
claims. The Company's exposure to asbestos and environmental claims arise
principally from general liability insurance contracts. Establishing reserves
for asbestos and environmental claims is subject to greater uncertainties than
those presented by other types of claims. Among the complications are lack of
historical data, long reporting delays, uncertainty as to the number and
identity of insurers with potential exposure, and unresolved legal issues
regarding policy coverage and the extent and timing of any such contractual
liability.
The legal issues concerning the interpretation of various insurance policy
provisions and whether asbestos and environmental losses are or were ever
intended to be covered are complex. Courts have reached different and sometimes
inconsistent conclusions as to when the loss occurred and what policies provided
coverage; what claims are covered; whether there is an insured obligation to
defend; how policy limits are determined; how policy exclusions are applied and
interpreted; and whether clean-up costs are covered as insured property damage.
Based on the foregoing, reserves for asbestos and environmental claims cannot be
estimated with traditional loss reserving techniques. Loss reserves including
IBNR have been established when sufficient information has been developed to
indicate the exposure of a specific insurance policy. The Company estimates the
impact of these exposures by establishing case basis reserves on all known
losses and LAE and by computing IBNR losses based on previous experience.
Due to the uncertainties set forth above, additional liabilities may arise for
amounts in excess of the current related reserves. These additional amounts, or
a range of these additional amounts cannot be reasonably estimated and could
result in liability in excess of these reserves, however, the Company does not
believe these amounts could be material to the Company's consolidated operating
results and financial condition in future periods.
During the year the Company and its subsidiaries commuted several significant
contracts. Sirius International commuted several acceptances within the
discontinued Film Financing area, which resulted in a negative underwriting
result of approxemately 65,000. In addition, in order to further reduce the
exposure on asbestos and pollution claims several old contracts were commuted
with predominately UK cedants. The accumulated negative impact was approximately
14,000.
During 2003 Scandinavian Re commuted or novated a number of contracts. The net
positive underwriting results for those contracts included in the Consolidated
Statement of Income is 196,742. Included in paid losses is the amount of
1,898,991 in respect of these contracts. The commutation of three contracts with
one cedant is significant and resulted in positive underwriting results for the
year on those contracts of 216,105. Paid losses for the year on those contracts
amounted to 1,504,218.
During 2003, Scandinavian Re also settled a dispute with a brokerage firm. The
Company received a settlement payment of 52,659. The amount is recorded as a
reduction of losses and LAE.
For the September 11, 2001 events the Company incurred a gross loss of
approximately US $110 million and a net loss of US $48 million. There has
been no reason for any significant changes to these estimates since 2001.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
6. CEDED REINSURANCE
In the ordinary course of business, the Company uses retrocessional agreement to
reduce its exposure to risk of loss on reinsurance assumed and direct business.
The Company is also a member of various pools and associations.
Reinsurance arrangements consist of facultative reinsurance, treaty
reinsurance, catastrophe reinsurance and aggregate excess of loss
reinsurance. These agreements provide for recovery of a portion of losses and
LAE.
Ceded reinsurance contracts do not relieve the Company of its primary obligation
to the policyholders. The Company remains liable to the extent that the
retrocessionaire do not fulfill their obligations assumed under these
agreements. The Company evaluates the financial condition of its reinsurers and
monitors concentration of credit risk on an ongoing basis.
At December 31, 2003, the Company had concentrations of credit risk
associated with reinsurance recoverables and prepaid reinsurance premiums
amounting to 2,103,979. The following retrocessionaries represent an
aggregate unsecured recoverable with third party reinsurers in excess of 3%
of the Company's surplus as of December 31, 2003:
<Table>
<Caption>
REINSURER AGGREGATE
LIABILITY
---------------------
- - ACE PROPERTY AND CASUALTY INSURANCE COMPANY 212,696
- - ODYSSEY AMERICA REINSURANCE CORPORATION 163,023
- - PARTNER REINSURANCE COMPANY 143,654
</Table>
An allowance for uncollectable receivables and recoverable unpaid losses has
been provided for of 193,126 for the Company, whereof Sirius International
represents 178,920 and Sirius America 14,206 respectively.
7. PREMIUMS
Assumed, ceded and net amounts for the year ended December 31, 2003 is as
follows:
<Table>
Direct premiums written 2,681,327
Reinsurance assumed 2,893,843
Reinsurance ceded -1,496,768
---------------------
NET PREMIUMS WRITTEN 4,078,402
=====================
Direct premiums earned 2,754,687
Reinsurance assumed 2,977,379
Reinsurance ceded -1,587,675
---------------------
NET PREMIUMS EARNED 4,144,391
=====================
</Table>
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
8. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the year ended
December 31, 2003, were as follows:
<Table>
Net Income 343,276
Other comprehensive income beginning of the
Year 2003
Other comprehensive income during year:
Net unrealized losses on investments
(net of tax of -30,808) -29,948
Foreign currency translation losses
(net of tax -41,274) -41,274
--------------------
COMPREHENSIVE INCOME 272,054
====================
</Table>
9. FEDERAL AND FOREIGN INCOME TAXES
Income tax receivable amounts to 19,923 on December 31, 2003.
Income tax expense (credit) consisted of the following components at December
31, 2003:
<Table>
Current tax
Sweden 502
Foreign 74,364
--------------------
74,866
Deferred tax (credit)
Sweden 175,673
Foreign -4,479
--------------------
171,194
--------------------
TOTAL 246,060
====================
</Table>
The provision for federal and foreign income tax gives effect to permanent
differences between income for financial reporting purposes and taxable income.
Accordingly, the effective income tax rate is different than the statutory
federal corporate tax rate. The reasons for the different effective tax rates
were as follows:
<Table>
Income before taxes 589,336
Tax at statutory federal income tax rate (28%) 165,014
Tax rate difference on foreign income 8,734
Write down of previously recognized
deferred tax assets 140,557
Other, net -68,245
--------------------
INCOME TAX EXPENSE 246,060
====================
</Table>
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
Tax payments of 72,630 were made during the year. The tax effects of temporary
differences that gave rise to deferred income tax assets and liabilities at
December 31, 2003 were as follows:
<Table>
Deferred income tax assets
Unpaid claims and claim expenses 53,240
Allowance for uncollectible accounts 19,431
Unearned premiums 25,401
Furniture and equipment 80
Tax credit carry forward 146,286
Less: valuation allowance -140,557
--------------------
TOTAL 103,881
Deferred income tax liabilities
Deferred acquisition costs -31,510
Unrealized gains on investments -91,460
Deferred tax on untaxed reserves - Sweden -2,036,617
Other, net -18,957
--------------------
TOTAL -2,178,544
--------------------
NET DEFERRED TAX LIABILITY -2,074,663
====================
</Table>
A valuation allowance is established if it is more likely than not that a
portion of the deferred tax asset will not be realized. Due to changes in the
tax legislation in Sweden, meaning that losses has to be recovered within one
year, the conclusion is that the Company will not be able to utilize the tax
asset emanating from Scandavian Re and a valuation allowance has been
provided for it.
10. EMPLOYEE BENEFIT PLANS
The Company operates several pension plans in accordance with the local
regulations and practices. These plans cover all companies' employees and
provide benefits to employees during the year 2003 in event of death, disability
or retirement. Contribution and other expenses amounted to 17,762.
Employees of the Company in Belgium, Bermuda, Sweden, United Kingdom and United
States of America are eligible to participate in defined contribution (DC) plans
sponsored by the Company, called Sirius Group Insurance, Scandinavian Re Pension
Plan, Sirius Re Pension Plan and CEO Plans, Sirius Group Personal Pension and
Sirius America 401 (k) Plan, respectively. Employees in Singapore are eligible
to participate in the state Central Provident Fund. The contribution percentages
by employees and by the Company vary by plan from 1.5%-60% by employees and
4.5%-36% by the Company. Employee contributions are 100% vested at all times.
The matching contributions by the Company are typically vested at 100% after two
years of participation. Contributions and administrative expenses for 2003
amounted to 17,081 and all have been vested as per December 31, 2003. Most
employees of Sweden are covered by a DC pension plan sponsored by the Company.
The percentage of the contribution varies from 5-36% of salary.
Certain employees in Sweden are also eligible to participate in a defined
benefit plan sponsored by the Company, called BTB Plan. Employees in Germany are
covered by defined benefit (DB) pension plans sponsored by the Company called
Sirius Ruck Service GmbH Pension Plan. Contributions and administrative expenses
during 2003 were not significant. Certain employees in Switzerland are eligible
to participate in one of the defined benefit plans sponsored by the Company
called ABB Pension Fund and ABB Supplementary Insurance Plan. The benefit
obligation by the Company for these plans is not material to the financial
position of the Company.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
11. LEASES
The Company occupies office facilities under various non-cancelable lease
agreements that expire at various dates; such leases are generally renewed or
replaced by other leases. In addition, the Company leases data processing,
office and transportation equipment. All leases are operating leases.
Rent expense for the year ended December 31, 2003 was 34,157.
At December 31, 2003, future minimum rental payments required under
non-cancelable operating leases were as follows:
Years Ending December 31
<Table>
2004 28,677
2005 28,628
2006 28,054
2007 19,318
2008 15,252
2009 and after 26,459
-----------------
TOTAL 146,388
=================
</Table>
12. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business the Company is involved in various legal
actions for which it establishes liabilities where appropriate. In the opinion
of the Company's management, based upon the advice of legal counsel, the
resolution of such litigation is not expected to have a material adverse effect
on the Company's results of operations or financial position.
At year-end 2003, Scandinavian Re was involved in arbitration proceedings with a
number of cedants regarding either disputes over the terms of various contracts,
or alleged fraudulent misrepresentation of information during the underwriting
process.
These financial statements reflect management's opinion of the expected outcomes
of the individual arbitration proceedings. However, there is uncertainty
surrounding the outcome of these disputes and there is no assurance that final
results will be as expected. Management has estimated that if the disputes were
adjudicated in favour of the respective cedants, then the company would need to
increase net liabilities.
Scandinavian Re is involved, as defendant, in litigation brought by the
liquidator of a group of Dutch companies, for one of which the company once
provided a `rent a captive' solution. The liquidator is seeking a judicial
finding that in the event that claims are submitted for the subject business of
the disputed rent a captive relationship, the company will be liable to
indemnify those claims.
Scandinavian Re has denied liability under the subject arrangement, and
management is of the opinion that the action has no merit and will ultimately
fail. It is not possible to quantify the ultimate liability should the plaintiff
prevail.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
During the year, Scandinavian Re accrued 14,583 for legal expenses in relation
to current and expected legal disputes. Legal expenses are recorded as part of
general and administrative expenses. The Company has provided capital
commitments in connection with various private equity fund limited partnership
agreements under which it could be obligated to contribute capital to specified
limits upon the occurrence of the events specified in such commitments. The
total of all such commitments to private equity firms at December 31, 2003 was
approximately 156,815, all of which the Company expects to fund in 2004 and
subsequent years.
In support of certain contracts, the Company's banks have issued letters of
credit totaling 3,384,269. The Company has pledged 4,119,830 of its assets to
collateralize letters of credit and other commitments.
Sirius International has issued guarantees on behalf of Scandinavian Re for
1,084,682. These guarantees were issued on December 22, 2003 and December 30,
2002 respectively.
Sirius International has a long term investment as a stockholder in LUC
Holdings (London Underwriting Center). In the stockholders agreement, the
stockholders have guaranteed the leases on a joint and several basis. As a
consequence the stockholders have funded the shortfall from the operations of
LUC. During 1999 to 2001 the funding was 4,377 per stockholder and year. For
2003 the funding was 6,633. Current information indicates that the required
funding will increase in the future. The underlying lease commitment expires
in 2016. During 2003 additional information indicates that the previous
provision for future shortfalls was insufficient. Therefore, a provision was
made during 2003 to cover this potential liability and an other than
temporary impairment charge of 101,067 has been recorded in investment income.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are based on quoted market prices where
available. Fair values of financial instruments for which quoted market prices
are not available are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rates and the estimated amounts and timing of future cash
flows. In such instances, the derived fair value estimates cannot be
substantiated by comparison to independent markets and are not necessarily
indicative of the amounts that could be realized in immediate settlement of the
instrument. Certain financial instruments, particularly insurance contracts, are
excluded from fair value disclosure requirements.
The methods and assumptions used to estimate the fair value of financial
instruments are as follows:
(i) Fair values of fixed maturities with active markets are based on quoted
market prices. For fixed maturities that trade in less active markets, fair
values is obtained from independent pricing services. Fair values of fixed
maturities are principally a function of current interest rates. Care should be
used in evaluating the significance of these estimated market values, which can
fluctuate, based on such factors as interest rates, inflation, monetary policy
and general economic conditions.
(ii) Fair values of equity securities with active markets are based on quoted
market prices. For other equity securities, fair values are estimates of value.
(iii) The carrying value of limited partnership investments accounted for under
the equity method, approximates fair value due to the nature of the underlying
holdings of the partnerships.
(iv) The carrying value of short-term debt approximates fair value due to the
short contractual terms of this debt.
The carrying value of other financial assets including insurance balance
receivables, deposits with cedents and accrued investment income approximate
their fair value.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
14. STOCKHOLDER'S EQUITY
The Company and its insurance subsidiaries prepare statutory financial
statements in accordance with the accounting practices prescribed or permitted
by the insurance departments of the country or states of domicile (statutory
basis). Prescribed statutory accounting practices are those practices that are
incorporated directly or by reference in country/state laws, regulations, and
general administrative rules applicable to all insurance enterprises domiciled
in a particular country/state. Permitted statutory accounting practices include
practices not prescribed by the domiciliary country/state, but allowed by the
domiciliary country/state regulatory authority.
The statutory basis stockholders' equity and minimum surplus equity requirement
as of December 31, 2003 was as follows:
<Table>
<Caption>
MINIMUM
SURPLUS
STOCKHOLDER'S EQUITY REQUIRED
-----------------------------------------------------------
Sirius International 6,096,750 710,264
Sirius Belgium 13,018 n/a
Sirius America 593,862 259,059
Scandinavian Re 1,190,531 575,672
Sirius Ruck 2,350 n/a
ABB Insurance Holding 399,713 n/a
------------------- ---------------------
8,296,224 1,544,995
=================== =====================
</Table>
Sirius International, held 1,646 at disposal of the General Meeting of
Stockholders, which represented the total distributable amount as of December
31, 2003. No dividend is suggested for this year.
In accordance with Swedish regulations, Sirius International holds restricted
reserves of 5,322,762, which primarily represents 72% of its untaxed
reserves. These restrictions are based on stockholder's equity determined on
a Swedish statutory basis. The restricted reserves cannot be paid as
dividends. At December 31, 2003, Sirius International is in compliance with
these restrictions.
For Scandinavian Re the minimum statutory capital and surplus required under
the Bermuda Insurance Act as of December 31, 2003, is 575,672. The Company's
actual statutory capital and surplus as of that date is 1,190,531 and
accordingly the solvency requirement has been met. The Company requires the
approval of the Supervisor of Insurance to pay dividends greater than 15% of
statutory capital, or 178,580.
Actual statutory capital and surplus, as determined using statutory accounting
principles, is as follows:
<Table>
Total stockholders' deficit -679,294
Add: loss reserve discount 1,869,891
Less: non-admitted assets -66
---------------------
STATUTORY CAPITAL AND SURPLUS 1,190,531
=====================
</Table>
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
Scandinavian Re has received the permission of the Supervisor of Insurance to
record its liability for losses and loss expenses on a discounted basis at
December 31, 2003 for Bermuda regulatory reporting purposes.
The company is also required to maintain a minimum liquidity ratio, whereby
the value of its relevant assets is not less than 75% of the amount of its
relevant liabilities. Relevant assets include cash and deposits, quoted
investments, accrued investment income and funds withheld and insurance
balances receivable. Certain categories of assets do not qualify as relevant
assets under statute. The relevant liabilities are total general insurance
reserves and total other liabilities.
At December 31, 2003, the company was required to maintain relevant assets of
5,882,758. At that date, relevant assets were approximately 9,034,177 and the
minimum liquidity ratio was therefore met.
Sirius America is restricted by Delaware law as to the amount of dividend it
may pay without the approval of regulatory authorities. The maximum amount of
dividends, which can be paid by the company without prior approval of the
Delaware Insurance Commissioner, is subject to restrictions related to
statutory policyholders' surplus, net investment income, and dividends
declared or distributed during the preceding 12 months. For the company, this
limitation at December 31, 2003 is 10% of statutory surplus. Accordingly, the
maximum dividend, which can be paid in 2003, is 59,385.
15. RELATED PARTY TRANSACTIONS
On June 26, 2003 the Company borrowed 1,451,080 with the shares in Sirius
International as collateral from two commercial banks. The loan was repaid in
full on December 15, 2003 and the collateral was released at the same time.
During January 2003 Sirius International Insurance Corporation invested 900,000
in ABB Commercial Papers with a maturity on February 26, 2003. Additional
investments in ABB Commercial Papers of 400,000 were made on May 20, 2003. This
latter investment matured on October 1, 2003.
Relating to the 2002 results, a Group Contribution was paid on February 19,
2003. Furthermore, a second Group Contribution was paid in January 2004 relating
to 2003. The first Group Contribution totals to 110,514 (net of tax 79,570)
and the second totals to 325,930 (net of tax 234,670), which was ultimately
paid to ABB. In addition, two dividends were paid totaling 1,702,000 and
345,000 respectively. The former dividend is a repayment of a capital
contribution paid as a dividend and was issued during the first quarter 2003
while the later was paid in December 2003. Both dividends were paid to ABB.
16. RISK AND UNCERTAINTIES
Sirius' consolidated balance sheet includes a substantial amount of assets and
liabilities whose fair values are subject to market risk. The term market risk
refers to the risk of loss arising from adverse changes in interest rates and
other relevant market rates and prices. Due to Sirius' sizable balances of
interest rate sensitive instruments, market risk can have a significant effect
on Sirius' consolidated financial position.
INTEREST RATE RISK
Fixed Maturity Portfolio. In connection with the Company's consolidated
insurance and reinsurance subsidiaries, Sirius invests in interest rate
sensitive securities, primarily debt securities. Sirius' strategy is to purchase
fixed maturity investments that are attractively priced in relation to perceived
credit risks. Sirius' fixed maturity investments are held as available for sale
in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"), whereby these investments are carried at fair
value on the balance sheet with net unrealized gains or losses reported net of
tax in a separate component of common shareholders' equity. Sirius generally
manages its interest rate risk associated with its portfolio of fixed maturity
investments by monitoring the average duration of the portfolio, which allows
Sirius to achieve an adequate yield without subjecting the portfolio to an
unreasonable level of interest rate risk.
Sirius' fixed maturity portfolio is comprised of primarily investment grade
corporate securities, U.S. government and agency securities, municipal
obligations and mortgage-backed securities (e.g., those receiving a rating from
the National Association of Insurance Commissioners of 1 or 2). Increases and
decreases in prevailing interest rates generally translate into decreases and
increases in fair values of fixed maturity investments, respectively.
Additionally, fair values of interest rate sensitive instruments may be affected
by the credit worthiness of the issuer, prepayment options, relative values of
alternative investments, the liquidity of the instrument and other general
market conditions.
<Page>
SIRIUS INSURANCE HOLDING SWEDEN AB
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2003
(In thousand Swedish krona or otherwise stated)
EQUITY PRICE RISK
The carrying values of Sirius' common equity securities and its other
investments are based on quoted market prices or management's estimates of fair
value (which is based, in part, on quoted market prices) as of the balance sheet
date. Market prices of common equity securities, in general, are subject to
fluctuations which could cause the amount to be realized upon sale or exercise
of the instruments to differ significantly from the current reported value. The
fluctuations may result from perceived changes in the underlying economic
characteristics of the investee, the relative price of alternative investments,
general market conditions and supply and demand imbalances for a particular
security.
FOREIGN CURRENCY EXCHANGE RATES
Some of Sirius' assets, liabilities, revenues and expenses are denominated in
foreign currencies. Sirius foreign assets and liabilities are valued using
year-end exchange rates and its foreign revenues and expenses are valued using
average exchange rates. Foreign currency exchange rate risk is the risk that
Sirius will incur economic losses due to adverse changes in foreign currency
exchange rates. This risk arises specifically from Sirius' foreign investment
securities, the net assets and operations of Scandinavian Re and Sirius America.
Sirius believes that the impact of any changes in foreign currency exchange
rates would have a significant effect on its financial statements as Sirius' net
assets and operations denominated in foreign currencies are not material.