Return on equity: 700 basis points above risk-free (average over five years)1
For details of the individual segment results, please see pages 30–33 of the 2013 Financial Report.
“Small and medium-sized enterprises should be among the biggest beneficiaries of Colombiaʼs free trade agreements. We want to be a part of that.”
Today Sura is Colombia’s leading provider of both life and non-life insurance. They also operate in Panama, El Salvador and the Dominican Republic. They aim to triple the equity held at the end of 2007 by 2017.
S w is s r e past problems, but the legacies of existing infrastructures and of expectations need to be dealt with. Notions of conflict between generations were quickly scotched, as delegates realised that when taking a multi-decade view, distinctions between the interests of young and old become moot. there was, though, a strong sense that whatever solutions we might reach for, we must think hard about unintended consequences — after all, it is such consequences that have brought about the climate change that now preoccupies us.
Our PaST, Our FuTurE, Our COMMiTMEnT | the risks ahead 30 Swiss re 2013 Business report
the citizens of new york and new Jersey responded with admirable courage and solidarity. neighbours helped neighbours; communities set up spontaneous support groups.
engaging with various stakeholders and the mayor’s office of long-term planning & sustainability, we identified a range of adaptation measures to be taken, quantifying their net economic benefit. some of the measures under consideration included beach renourishment, wetlands restoration, raising bulkheads in low-lying neighbourhoods, retrofitting public housing units and nursing homes, and hardening key electric transmission and distribution infrastructure such as vulnerable overhead lines.
networking for resilience Urban resilience is a challenge that concerns us all, and so we are reaching outside of our usual networks to advance the cause. in 2013 we joined the Rockefeller foundation to lead the 100 Resilient Cities Centennial Challenge. the Challenge will support at least 100 cities in hiring a Chief Resilience officer and creating a resilience strategy.
We aim to offer participating cities access to innovative finance to fund their resilience strategies. through the Challenge we also look forward to bringing our expertise to the aid of Chief Resilience officers, supporting the development of the Chief Resilience officer network and contributing our own risk management insights and tools. >
We look forward to establishing that same level of engagement with the worldʼs cities as they grow and thrive.
At Group level measures are in place to enhance productivity. We expect to deliver USD 250–300 million in cash savings by 2015 compared to 2012. Our main focus will be on redeploying these savings to higher return opportunities.
Global growth remained moderate in 2013. The advanced economies saw modest growth which gained strength over the course of the year, while the pace of expansion in the emerging economies slowed a little from the relatively robust levels of 2012. Monetary policy in the major markets remained accommodative. expectations of stronger growth and reduced monetary stimulus in the US, however, led to a marked increase in benchmark government bond yields. equity markets continued to perform well, supported by the easy monetary conditions and improving growth in the advanced economies.
By contrast, bond yields of the peripheral eurozone economies declined. the narrowing yield spreads versus the German benchmark reflected lower perceived risk given improved growth prospects and likely support from the ecB. corporate credit spreads also narrowed as growth in the advanced economies improved.
Ultimately the long-term prospects for marine and airline insurance are tied to growth. If the world economy continues to recover, and the global rebalancing of trade and capital flows proceeds smoothly, marine and airline premiums should follow suit.
Further reading: Swiss Re’s 04/13 sigma on navigating recent developments in marine and airline insurance.
Pension funds, hedge funds and others have been supplying an increasing share of capacity to the global natural catastrophe re/insurance market.
Operating margin in the life reinsurance industry declined to 5% of net premiums earned in 2013, compared with 8% in 2012 and 10% in 2011. this was primarily due to declining investment returns from low interest rates (see box below), but also to deteriorating underwriting results. Underwriting results were adversely affected in particular by increased claims in the australian group disability business, where claims were not only higher, but reinsurers needed to strengthen their claims reserves in anticipation of a significant rise in expected future claims.
the IaIS and other regulatory authorities have determined that traditional insurance and reinsurance activities are unlikely to be a source or amplifier of systemic risk. Swiss Re endorses that view.
Outlook We expect moderate growth recovery in global markets, with sustainable growth in the US set to continue. a disciplined “top-down” investment strategy continues to be warranted as the progress of economic repair is likely to be slow and accident-prone. this includes policy errors, the reform process in china and eU debt crisis as the key risk factors to monitor.
Swiss Re remains engaged in public consultations with policymakers to unlock the potential of long-term investors for growth.
Fee income from policyholders 785 542 –31 net investment income – non-participating 4 473 3 947 –12 net realised investment gains/losses – non-participating 947 766 –19 net investment result – unit-linked and with-profit 2 570 3 347 30 Other revenues 188 24 –87 expenses claims and claim adjustment expenses –7 763 –9 655 24 Life and health benefits –8 878 –9 581 8 Return credited to policyholders –2 959 –3 678 24
Interest on contingent capital instruments –56 –67 20 net income attributable to common shareholders 4 201 4 444 6 26 Swiss Re 2013 Financial Report
natural catastrophe prices are still attractive, though reduced. Over 2013 we were able to defend our leading position by deploying more capacity while maintaining absolute earnings at attractive economic profit margins. Property and specialty continued to contribute significantly to overall reinsurance earnings. casualty price levels are softer overall, though improving in some markets. In all segments we will continue to focus on tailored solutions for clients, which in 2013 allowed us to put our capital to use at differentiated terms and conditions.
expenses claims and claim adjustment expenses –6 306 –7 884 25
Operating income was USD 592 million for 2013 compared to USD 885 million for 2012. excluding the impact of reserve strengthening for the australian group disability business, operating income in 2013 was higher due to more favourable experience on variable annuities and the pre-2004 guaranteed minimum death benefit (GMDB) business. In addition, the pre-2004 US individual life business gradually improved and asset re-balancing resulted in higher investment income.
total revenues excluding unit-linked and with-profit revenues and non-participating realised gains/losses.
Recent steps taken to implement the corporate Solutions strategy have included the strengthening of local teams in existing offices and expanding its distribution channels by obtaining a direct insurance licence in Singapore. the new licence was already leveraged in november 2013 as part of the first public-private partnership designed to foster trade finance between Singapore and emerging asian markets. Launched by International enterprise Singapore (Singapore’s export promotion agency), in partnership with the asian Development Bank and corporate Solutions, the agreement is designed to provide additional capacity to Singapore banks with emerging market credit exposures.
Gross written premiums (in USD billions, net of intra-group transactions; caGR is compound annual growth rate)
value extraction relates to the active management of the portfolios of assets and blocks of businesses and a focus on consistently creating value through capital and tax synergies.
Operational excellence is the third core competency and involves continuous improvement of the unique and scalable operating platform as well as a focus on transformation and management actions including business efficiency and cost reduction.
Outlook admin Re® aims to pursue selective growth opportunities in the Uk, taking advantage of its unique and scalable platform. all transactions must meet Group investment criteria and hurdle rates. It also aims to improve efficiency, achieve capital and tax synergies, and to actively manage its asset portfolios and blocks of business. through these actions admin Re® aims to generate USD 850–950 million in cash from 2014 to 2016, and to pay dividends of USD 900 million to the Group in the same period.
index representation In addition to its relevant industry indices, Swiss Re is also represented in various Swiss, european and global indices, including the SMI and the SXIP. the composition of these indices is typically based on free-float market capitalisation. Swiss Re is also a member of various sustainability indices, including the Dow Jones Sustainability and FtSe4Good index families.
Swiss/blue chip indices SMI 2.82 SPI 2.37 insurance indices StOXX europe 600 Insurance 5.18 Bloomberg europe 500 Insurance 5.52 FtSeurofirst 300 Insurance 6.48 Dow Jones Insurance titans 30 2.78
in 2013, we actively increased our overall risk exposure by pursuing business growth and re-balancing our investment portfolio. Swiss Reʼs management is confident of the group’s overall risk profile and capitalisation, both of which lie within the boundaries of our self-imposed group-wide risk tolerance. We continue to hold excess capital under all applicable external capital adequacy requirements, as well as surplus liquidity and capital relative to our own, more conservative risk tolerance criteria.
We actively steer our capital to maximise financial flexibility and to ensure that all Group companies are adequately capitalised at all times.
Swiss Re provides regulatory solvency reporting to FInMA under the rules of Solvency I and the SSt. the SSt is based on an economic view. We calculate available capital based on our economic value Management (evM) framework and required capital under the SSt using our internal risk model (see pages 47–48 for further information on evM). the minimum requirement for Solvency I and the SSt is a ratio of 100%. Swiss Re’s Solvency I and SSt ratios both materially exceed the minimum requirement.
evM is an integrated economic accounting and steering framework based on market consistent valuations and defines the method for measuring value creation for all business activities of Swiss Re.
the central departments support both the Group cRo and the Business unit cRos in discharging their oversight responsibilities. they do so by providing specialised risk category expertise and accumulation control, risk modelling and reporting services, regulatory relations management, and central risk governance framework development. the central departments also oversee Group liquidity and capital adequacy and maintain the Group frameworks for controlling these risks throughout Swiss Re.
Property and casualty 7.8 9.1 17 ➔ see page 54 Life and health 7.3 6.6 –10 ➔ see page 55 Financial market 10.5 13.3 27 ➔ see page 56 diversification effect –10.9 –12.0 Swiss Re group 16.6 20.0 21 1 credit comprises credit default and credit migration risk.
weekly Group-level reports are provided on risks, and on specific limits for internally and externally managed investment mandates and for the Business units. these reports track exposures, document limit usage (which is independently monitored by Financial Risk Management), and provide information on key risks that could affect the portfolio. Specific limits are assigned to line of business heads, who seek to optimise their portfolios within those limits. the reports are presented and discussed with those responsible for the relevant business line at the weekly Asset Management Risk committee.
credit risk developments in 2013 management change from 2012 99% tail VaR
to take account of country risks other than from credit default, Swiss Re’s Political and Sustainability Risk Management unit prepares specific country ratings in addition to the sovereign ratings used by the Group and the Business units. these ratings are considered in the decision-making process, and cover political, economic and security-related country risks.
Strategic risk Strategic risk for Swiss Re represents the risk that poor strategic decision-making, execution, or response to industry changes or competitor actions could harm Swiss Re’s competitive position and thus its franchise value.
Middle east & Africa ̤ Globals ̤ Property & Specialty underwriting ̤ casualty underwriting ̤ Property & casualty
If advance subscription rights are excluded, then the equity-Linked Financing Instruments are to be placed at market conditions, the exercise period is not to exceed ten years for option rights and 20 years for conversion rights, and the conversion or exercise price for the new registered shares is to be set at least in line with the market conditions prevailing at the date on which the equity-Linked Financing Instruments are issued.
the subscription rights of existing shareholders may not be excluded with respect to a maximum of chF 5 000 000 through the issue of up to 50 000 000 registered shares, payable in full, each with a nominal value of chF 0.10, out of the total amount of authorised capital.
changes in 2012 no changes in share capital took place during 2012.
convertible bonds and options convertible bonds As of 31 december 2013, neither Swiss Re Ltd nor any of its subsidiaries has any bonds outstanding that are convertible into equity securities of Swiss Re Ltd solely at the option of bondholders.
Services Round table, where the chairman and ceos of the largest european financial institutions meet regularly
Raymond K.F. ch’ien (1952), chinese Member, non-executive and independent career Raymond K.F. ch’ien was Group Managing director of Lam Soon hong Kong Group from 1984 to 1997 and chairman of cdc corporation from 1999 to 2011. he was elected to Swiss Re’s Board of directors in 2008 and is a member of the Audit committee and the Investment committee.
external appointments ̤ chairman of the Boards of directors of MtR corporation Ltd and hang Seng Bank Ltd
̤ trustee of the university of Pennsylvania educational background ̤ Phd in economics, university of
She held professorships at the university of Lausanne from 1991 to 2000 and the university of Zurich from 2000 to 2008. She was a member of the Swiss Federal Banking commission from 1997 to 2004. She was elected to Swiss Re’s Board of directors in 2000 and is a member of the Finance and Risk committee and the Investment committee.
Body number of meetings average duration average attendance Invitees in advisory capacity, in addition to members
Financial reporting ̤ Prepares and presents to the Board of directors the annual and interim financial statements of the Group together with segment reporting on the Business units capital management ̤ establishes principles on financing through capital markets and the allocation of financial resources within the Group
Michel M. Liès Luxembourg 59 Group ceo david cole dutch, American 52 Group chief Risk officer John R. dacey American 53 Group chief Strategy officer/chairman
Admin Re® Guido Fürer Swiss 50 Group chief Investment officer Agostino Galvagni Italian 53 ceo corporate Solutions Jean-Jacques henchoz Swiss 49 ceo Reinsurance europe, Middle east and
Management development (IMd), Switzerland 88 Swiss Re 2013 Financial Report coRpoRate goveRnance | eXecutIve MAnAGeMent
̤ Bachelor of Science in Statistics, university of Ibadan, nigeria george Quinn (1966), British Group chief Financial officer
J. eric Smith (1957), American chief executive officer Swiss Re Americas / Regional President Americas
In accordance with the Federal Act on Stock exchanges and Securities trading (SeStA), whosoever acquires equity securities, which added to equity securities already owned, exceed the threshold of 33⅓% of Swiss Re shares with voting rights, either directly, indirectly or in concert with third parties, and regardless of whether these rights are exercisable or not, triggers a mandatory takeover offer for the outstanding Swiss Re shares owned by all other shareholders.
Duration of the mandate and term of office of the lead auditors Pricewaterhousecoopers Ltd (Pwc) was appointed as the external auditor of Swiss Re Ltd when the company was founded on 2 February 2011. Pwc had been elected as the external auditor of the previous parent company of the Group, Swiss Reinsurance company Ltd, at its Annual General Meeting of 22 november 1991 and had been reelected annually since then. the Annual General Meeting of shareholders of 10 April 2013, following the proposal of the Board of directors based on the recommendation of the Audit committee, re-elected Pwc for a term of one year as auditors.
Integrating adaptation to climate change with economic development and sustainable growth natural catastrophes are a key risk in our business. losses from floods, storms, earthquakes and other disasters affect millions of lives and the economies of entire countries. providing effective re/insurance protection against natural catastrophes therefore has large social and economic benefits.
uS Gaap and economic Value management (eVm) based business results continue to be the main drivers for variable compensation. the strong 2012 business results led to an increase of the incentive pools compared to 2011. the 2013 business performance was again positive leading to compensation levels which are broadly similar to 2012.
̤ 18% Compliance and regulatory ̤ 9% Compensation and performance of Group eC members
independence of the Control Functions In order to ensure the continued independence of Control Functions, Swiss Re has modified its compensation approval processes. although the compensation framework applicable to Control Functions remains largely the same as for all other employees, some of the key annual compensation decisions for these functions are approved differently. For example the Chairman of the audit Committee and the Chairman of the Finance and Risk Committee approve the aggregate apI pool of their respective Control Functions, as well as approving the individual compensation for the head of each Control Function.
assessment of the performance of the members of the Group eC will be based on the Group and their respective business area as well as their individual contribution.
Includes consideration for indicators such as Clients & Service Quality, Risk & Control Behaviour, Franchise Building, human Capital & talent management as well as Strategic Initiatives
Swiss Re has two Vice Chairmen. one Vice Chairman was appointed in 2009 and chairs the Investment Committee, and since 2012 also the Finance and Risk Committee. additionally he is a member of the Chairman’s and Governance Committee. throughout the year, this Vice Chairman devotes about three-quarters of his time to his tasks. an additional Vice Chairman was appointed in 2012 and is also a member of the Chairman’s and Governance Committee and furthermore is a member of the audit Committee and the Compensation Committee. the Board of directors may assign further tasks to the Vice Chairmen. Such tasks may include representation of the Board of directors in the Boards of the Group’s uS or european subsidiaries, which are highly relevant to Swiss Re from both a risk and revenue perspective.
Cash annual performance Incentive1 125 51 137 45 long-term variable compensation other payments Severance payments2 4 6 0 0 1 a post-award adjustment was made in 2013 in respect of two employees for the 2012 performance year. the incremental amount was ChF 280 000 which is not included in the table above.
Compensation for the members of the Board of Directors the individual compensation for the members of the Board of directors for 2013 was: Shares held by members of the Board of Directors the number of shares held by members of the Board of directors as of 31 december were: ChF thousands1,2 total 2012
130 Group financial statements 130 income statement 131 statement of comprehensive
earnings per share in cHf1 1 the translation from UsD to cHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
real estate for own use, property, plant and equipment are carried at depreciated cost.
investment contracts are long-duration contracts that do not incorporate significant insurance risk, ie there is no mortality and morbidity risk, or the mortality and morbidity risk associated with the insurance benefit features offered in the contract is of insignificant amount or remote probability. amounts received as payment for investment contracts are reported as policyholder account balances. related assets are included in general account assets except for investments for unit-linked and with-profit business, which are presented in a separate line item on the face of the balance sheet.
the deposit method of accounting is applied to insurance and reinsurance contracts that do not indemnify the ceding company or the Group against loss or liability relating to insurance risk. under the deposit method of accounting, the deposit asset or liability is initially measured based on the consideration paid or received. for contracts that transfer neither significant timing nor underwriting risk, and contracts that transfer only significant timing risk, changes in estimates of the timing or amounts of cash flows are accounted for by recalculating the effective yield. the deposit is then adjusted to the amount that would have existed had the new effective yield been applied since the inception of the contract. the revenue and expense recorded for such contracts is included in net investment income. for contracts that transfer only significant underwriting risk, once a loss is incurred, the deposit is adjusted by the present value of the incurred loss. at each subsequent balance sheet date, the portion of the deposit attributable to the incurred loss is recalculated by discounting the estimated future cash flows. the resulting changes in the carrying amount of the deposit are recognised in claims and claim adjustment expenses.
investment result – unit-linked and with-profit business unit-linked and with-profit business are presented together as they are similar in nature. for unit-linked contracts, the investment risk is borne by the policyholder. for with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the down-side risk for the policyholder, and a certain proportion of the returns may be retained by swiss re (typically 10%).
Net investment result on unit-linked and with-profit business credited to policyholders was as follows: impairment on fixed income securities related to credit losses other-than-temporary impairments for debt securities are bifurcated between credit and non-credit components, with the credit component recognised through earnings and the non-credit component recognised in other comprehensive income. the credit component of other-than-temporary impairments is defined as the difference between a security’s amortised cost basis and expected cash flows. methodologies for measuring the credit component of impairment are aligned to market observer forecasts of credit performance drivers. management believes that these forecasts are representative of median market expectations.
as of 31 December 2012 and 2013, investments in real estate included usD 5 million and usD 5 million, respectively, of real estate held for sale.
exchange-traded derivative instruments typically fall within level 1 or level 2 of the fair value hierarchy depending on whether they are considered to be actively traded or not.
Derivative credit contracts 223 28 credit default swaps referencing various asset-backed securities (aBs) 109 22 credit spreads derived based on a reciprocal of a reference instrument up-front credit default swap premium 5%–94% (81%) credit correlation tranche transactions 112 6 Base correlation model correlation 40%–88% (64%)1 liabilities Derivative equity contracts –232 –190 otc equity option referencing correlated equity indices –81 –49 proprietary option model correlation –10%–100% (45%)1 option contract referencing a private equity underlying –144 –137 option model Volatility 100%
2012 usD millions property & casualty reinsurance life & health reinsurance corporate solutions admin re® Group items total opening balance as of 1 January 2012 1 247 2 663 –25 34 4 3 923 cumulative effect of adoption of asu No. 2010-26 –35 –35 effect of acquisitions/disposals and retrocessions 0 effect of foreign currency translation 3 53 2 1 59 Write-off of Dac –31 –31 closing balance as of 31 December 2012 1 103 2 713 219 2 2 4 039 2013 usD millions property & casualty reinsurance life & health reinsurance corporate solutions admin re® Group items total opening balance as of 1 January 2013 1 103 2 713 219 2 2 4 039 cumulative effect of adoption of asu No. 2010-26 0 effect of acquisitions/disposals and retrocessions 57 57 effect of foreign currency translation –19 –19 2 –1 –2 –39 Write-off of Dac 0 closing balance as of 31 December 2013 1 591 2 845 319 1 0 4 756 176 Swiss Re 2013 financial report
Senior financial debt 161 148 Senior operational debt 109 48 Subordinated financial debt 238 286 Subordinated operational debt 251 246
Premiums earned before retrocession to external parties 16 366 11 359 3 265 883 1 31 874
Net operating tax losses of USD 2 076 million and net capital tax losses of USD 24 million were utilised during the period ended
Deferred tax liabilities Present value of future profits –752 –727 Income accrued/deferred –598 –642 Bond amortisation –188 –206 Deferred acquisition costs –680 –721 Technical provisions –2 559 –2 845 Unrealised gains on investments –1 487 –589 Untaxed realised gains –557 –524 Foreign exchange provisions –301 –132 other –826 –705 total deferred tax liabilities –7 948 –7 091 liability for unrecognised tax benefits including interest and penalties –1 494 –1 151 total deferred and other non-current tax liabilities –9 442 –8 242
Fair value of plan assets as of 1 January 2 983 1 814 4 797 Actual return on plan assets 206 190 396
Debt securities issued by the US government and government agencies 136 136 Debt securities issued by non-US governments
Acquired present value of future profits 1 451 2 086 3 537
Foreign currency translation Assets and liabilities denominated in foreign currencies are converted into Swiss francs at year-end exchange rates with the exception of participations, which are maintained in Swiss francs at historical exchange rates. income and expenses are converted into Swiss francs at average exchange rates for the reporting year.
cash and cash equivalents Cash and cash equivalents include cash at bank, short-term deposits and certain investments in money-market funds with an original maturity of three months or less. Such current assets are held at nominal value.
Receivables from subsidiaries and affiliated companies/Other receivables these assets are carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value.
Swiss Re Ltd receives management and other services from Swiss Reinsurance Company Ltd and has no employees of its own.
individual compensation for the members of the Board of directors was: in 2009 and 2010, the Chairman and the then Vice Chairman received half of their fees in the form of a three-year performance share plan and the balance in cash. the performance share plan was measured against total relative shareholder return (tSR). the 2009 and 2010 performance shares were granted at a reference price of CHF 36.00 and CHF 53.60, respectively. the final number of shares released after three years could vary between 0% and 150% depending on the relative total shareholder return against a peer group. the Group did not grant a performance share plan from 2011 onwards. the plans were settled in 2012 and 2013 respectively.
these factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
obligations. In addition, provisions of the wall Street Reform and consumer Protection act of 2010, as well as provisions in the proposed European Market Infrastructure Regulation and proposed changes to the Markets in Financial Instruments directive (MiFId), in respect of derivatives could have a significant impact on the Group.
these risks can have a significant effect on investment returns and market values of securities positions, which in turn may affect both the Group’s results of operations and financial condition. the Group continues to focus on asset-liability management for its investment portfolio, but pursuing even this strategy has its risks – including possible mismatch – that in turn can lead to reinvestment risk. the Group seeks to manage the risks inherent in its investment portfolio by repositioning the portfolio from time to time, as needed, and to reduce risk and fluctuations through the use of hedges and other risk management tools.