44 Note 6 Debt 47 Note 7 Unpaid claims and claim adjustment expenses 49 Note 8 Reinsurance information 51 Note 9 Income taxes 54 Note 10 Benefit plans 62 Note 11 Share-based payments 66 Note 12 Commitments and contingent liabilities 67 Note 13 Information on business segments 74 Note 14 Subsidiaries, equity investees and variable interest entities 83 Note 15 Restructuring provision 84 Note 16 Risk assessment 86 Report of the statutory auditor
Equity securities: Available-for-sale, at fair value (including 0 in 2010 and 45 in 2011 subject to securities lending and repurchase agreements) (cost: 2010: 1 241; 2011: 1 907) 1 474 1 960
Premiums and other receivables 11 095 11 441 Reinsurance recoverable on unpaid claims and policy benefits 8 12 637 11 837 Funds held by ceding companies 9 346 9 064
Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items1 2 442 3 112 Net realised investment gains/losses –2 783 –409 Convertible perpetual capital instrument 1 117 Change in: Technical provisions, net1 –3 915 –4 093 Funds held by ceding companies and other reinsurance balances 13 –1 501 Reinsurance recoverable on unpaid claims and policy benefits –1 366 275 Other assets and liabilities, net –1 610 –20 Income taxes payable/recoverable 85 –546 Income from equity-accounted investees, net of dividends received –265 –225
Purchase/sale of treasury shares –6 –270 Interest on convertible perpetual capital instrument –323 Dividends paid to shareholders –319 –1 035 Net cash provided/used by financing activities –3 761 –10 530
Notes to the Group financial statements 1 Organisation and summary of significant accounting policies
Realised/unrealised gains/losses: Included in net income 22 123 –31 –2 731 –95 748 Included in other comprehensive income
Closing balance as of 31 December 2010 –271 –825 –72 –56 –1 007 –2 572 –4 803 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer. 2 The Group has mainly transferred residential mortgage-backed securities with a maturity longer than 20 years from level 3 to level 2 as the valuation of those products is based on observable inputs.
Issuances2 Sales2 –670 –30 –218 –196 –397 –85 –1 –239 –134 –501 –2 471
Derivatives not designated as hedging instruments Interest rate contracts –64 18 Foreign exchange contracts 494 361 Equity contracts –2 143 Credit contracts –73 –219 Other contracts –116 –799 Total gain/loss recognised in income 239 –496
Fair value hedging relationships Interest rate contracts 183 –147 406 –398 Foreign exchange contracts –57 116 –69 74 Total gain/loss recognised in income 126 –31 337 –324
The Group has purchased protection to manage the performance/payment risks related to credit derivatives. As of 31 December 2010 and 2011, the total purchased credit protection based on notional values was USD 30 304 million and USD 26 367 million, respectively. Thereof USD 12 025 million and USD 8 159 million, respectively, were related to identical underlyings for which the Group sold credit protection. For tranched indexes and baskets, only matching tranches of the respective index were determined as identical. In addition to the purchased credit protection, the Group manages the performance/payment risks through a correlation hedge, which is established with non-identical offsetting positions.
Senior financial debt 33 279 Senior financial debt – convertible perpetual capital instrument 3 966
Interest expense on long-term debt Interest expense on long-term debt for the periods ended 31 December was as follows: Long-term debt issued in 2011 In December 2011, the Group issued CHF 600 million under the EMTN programme, due in 2017 with a coupon of 2.125%.
Sales inducements deferred 234 265 Sales inducements amortised –219 –257 Impact of foreign exchange and other movements –31 –7 Unamortised balance of sales inducements 1 019 1 020
As of 31 December 2011, the Group had USD 12 829 million net operating tax loss carryforwards, expiring as follows: USD 8 million in 2012, USD 218 million in 2015, USD 1 million in 2016, USD 7 169 million in 2017 and beyond, and USD 5 433 million never expire. The Group also had capital loss carryforwards of USD 46 million, expiring as follows: USD 1 million in 2013 and USD 45 million in 2014. Net operating tax losses of USD 730 million were utilised or expired during the period ended 31 December 2011.
Certain items reported as pension plan assets at fair value in the table below are not within the scope of Note 3, namely two positions: real estate and an insurance contract.
Purchases, issuances and settlements 7 16 23 Transfers in and /or out of Level 3 0 Impact of foreign exchange movements –3 –2 –5 Closing�balance�as�of�31�December 549 119 668
The LTI plan granted in 2009 is expected to be settled in shares. The payout factor is driven by average ROE and EPS compound annual growth over the vesting period. At grant, the plan was expected to be settled in cash; however, the Group subsequently changed its intention to settle in shares. As a result, the share price used for measurement was CHF 42.40 which was set as of the date the share settlement decision was made in November 2009.
The allocation is based on technical reserves and other information, including duration of the underlying liabilities, and was allocated in the years ended 31 December 2010 and 2011 as follows: USD millions, for the year ended 31 December 2010 Property & Casualty Life & Health Asset Management Allocation
China Beijing Prestige Health Consulting Services Company Limited, Beijing 6 6 100 e
The Risk Management function continuously reviews Swiss Re’s organisation in order to ensure alignment with the Group’s structure.
Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the consolidated financial statements of Swiss Re Group, which comprise the income statement, balance sheet, statement of shareholders’ equity, statement of comprehensive income, statement of cash flow, and notes (pages 3 to 85) for the year ended 31 December 2011.
The business year under report was characterised by the establishment of the new corporate structure. Hence, the Company’s investment portfolio in subsidiaries and affiliated companies showed considerable movements, as well as impacted the corresponding income statement lines. Along with the restructuring, the technical result was impacted by various recaptures of reinsurance treaties by affiliated companies of the Company in the life and health business.
Other income and expenses Other interest income 67 67 Other interest expenses –792 –410 Other income 655 69 Other expenses –984 –330 Result from other income and expenses –1 054 –604
Foreign currency translation Assets and liabilities denominated in foreign currencies are converted into Swiss francs at year-end exchange rates with the exception of significant participations which are maintained in Swiss francs at historical exchange rates.
Liabilities assumed and consideration provided in connection with portfolio transactions are established through the respective lines in the income statement. The initial recognition of assumed outstanding claims is recorded as change in unpaid claims, with the consideration being recognised as negative claims paid. The assumption of the provision for unearned premiums is established through the change in unearned premiums, with the respective consideration accounted for as premiums written. The liability for life and health policy benefits is established as a charge against life and health benefits, with the initial premium consideration recorded as premiums written.
2 Details on the dividend payments for the financial year 2011 are disclosed on page 103.
Authorised�capital The Board of Directors is authorised to increase the share capital of the Company at any time up to 20 May 2013 by an amount not exceeding CHF 8 500 000 through the issuance of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10. Increases by underwriting as well as partial increases are permitted. The date of issue, the issue price, the type of contribution and any possible acquisition of assets, the date of dividend entitlement as well as the expiry or allocation of non exercised subscription rights will be determined by the Board of Directors.