Philips 2015 Annual Report Download - page 170

Group nancial statements 12.9 32
170 Annual Report 2015
Country risk
Country risk is the risk that political, legal, or economic
developments in a single country could adversely
impact our performance. The country risk per country is
dened as the sum of the equity of all subsidiaries and
associated companies in country cross-border
transactions, such as intercompany loans, accounts
receivable from third parties and intercompany
accounts receivable. The country risk is monitored on a
regular basis.
As of December 31, 2015, the Company had country risk
exposure of EUR 10.3 billion in the United States, EUR
1.7 billion in China (including Hong Kong), EUR 1.1 billion
in Singapore and EUR 1.1 billion in Belgium. Other
countries higher than EUR 500 million are Germany
(EUR 770 million), United Kingdom (EUR 739 million),
Japan (EUR 662 million), Netherlands (EUR 549
million), Poland (EUR 519 million) and Malaysia (EUR
507 million). Countries where the risk exceeded EUR
300 million but was less than EUR 500 million are Saudi
Arabia and India. The degree of risk of a country is taken
into account when new investments are considered.
The Company does not, however, use nancial
derivative instruments to hedge country risk.
Other insurable risks
Philips is covered for a broad range of losses by global
insurance policies in the areas of property damage/
business interruption, general and product liability,
transport, directors’ and ocers’ liability, employment
practice liability, crime and cyber. The counterparty risk
related to the insurance companies participating in the
above mentioned global insurance policies are actively
managed. As a rule Philips only selects insurance
companies with an S&P credit rating of at least A-.
Throughout the year the counterparty risk is monitored
on a regular basis.
To lower exposures and to avoid potential losses,
Philips has a global Risk Engineering program in place.
The main focus of this program is on property damage
and business interruption risks including company
interdependencies. Regular on-site assessments take
place at Philips locations and business critical suppliers
by risk engineers of the insurer in order to provide an
accurate assessment of the potential loss and its
impact. The results of these assessments are shared
across the Company’s stakeholders. On-site
assessments are carried out against the predened Risk
Engineering standards which are agreed between
Philips and the insurers. Recommendations are made
in a Risk Improvement report and are monitored
centrally. This is the basis for decision-making by the
local management of the business as to which
recommendations will be implemented.
For all policies, deductibles are in place, which vary
from EUR 250,000 to EUR 5,000,000 per occurrence
and this variance is designed to dierentiate between
the existing risk categories within Philips. Above this
rst layer of working deductibles, Philips operates its
own re-insurance captive, which during 2015 retained
EUR 2.5 million per occurrence for property damage
and business interruption losses and EUR 5 million in
the aggregate per year. For general and product liability
claims, the captive retained EUR 1.5 million per claim
and EUR 6 million in the aggregate. New contracts were
signed on December 31, 2015, for the coming year,
whereby the re-insurance captive retentions remained
unchanged.
32 Subsequent events
Financing Volcano
In 2015, Philips nanced the acquisition of Volcano with
a short-term loan of USD 1.3 billion. Philips decided in
December 2015 to amend and extend the loan which
was actually executed in January 2016. The loan will
mature in December 2016.