Strong client franchise demonstrated Our relationships with our clients are at the heart of our ability to create value for shareholders. The renewals in 2009 and our ability to maintain our market position demonstrate the strength of these relationships.
Reinsurance creates stability. By managing risks and covering losses, reinsurers protect investments and enable economic growth. As a leading global reinsurer, Swiss Re has the diversification and capacity to provide companies with innovative (re)insurance and capital market solutions.
61 See Financial year 46 See Financial year 56 See Financial year 50 See Financial year 202 See Financial statements 206 See Financial statements 204 See Financial statements 203 See Financial statements
To serve our clients and create shareholder value in a competitive market, we focus on our core business, while ensuring capital strength and making sure the company is fit to compete. In other words: we are building on our strengths.
̤ terminated almost all of our Financial Guarantee Re insurance exposures and substantially reduced other Legacy risks
Competition remained strong, and primary insurers struggled to enforce rate increases while their clients were battling recessionary market conditions.
L & H net premiums earned by region Total: CHF 10 679 million
Our core business continued to deliver strong underwriting results and we significantly de-risked both our assets and liabilities
Talent development programmes Top responsibilities at Swiss Re naturally require proven leadership skills as well as strong technical knowledge and effective working habits. We have created tightly focused 3-year programmes to develop candidates for such positions at Director and Managing Director levels. Every year we select about 70 employees around the globe into these programmes and prepare them with structured and accelerated development offerings for more senior roles within Swiss Re. These top talent receive formal training, are challenged by both tough assignments and job rotations and have the opportunity to be exposed to and engaged in active dialogue with Swiss Re’s top management.
We understand the importance of assessment for high-quality training. We have therefore included follow-ups and manager surveys to increase the effectiveness of training sessions. These gauge the longer-term value of our programmes to employees, ensuring that our training investment continues to pay dividends.
Robert A. Scott Robert A. Scott joined Swiss Re’s Board of Directors in 2002. He is also a director of Pension Insurance Corporation Limited and an advisor to Duke Street Capital.
In the run-up to the COP 15 UN Climate Change Conference, Swiss Re senior management members signed the Copenhagen Communiqué and a statement of 181 institutional investors around the world. Both documents called on world leaders to develop a robust climate change agreement to build and succeed on the Kyoto Protocol.
In the UK, employees organised fundraising events for Macmillan Cancer Support. Volunteers from Swiss Re Canada worked for the Daily Bread Food Bank – a charitable organisation combating hunger in the Greater Toronto Area. A team of 100 Swiss Re employees in Armonk, New York, raised money for Maria Fareri Children’s Hospital in a charity walk.
Economy and financial markets Severe global recession in early 2009 The first half of 2009 saw most advanced economies adversely impacted by a sharp contraction in global trade and production following the near collapse of the global banking system in late 2008. Central banks reacted to the downturn by slashing interest rates to near-zero levels as well as resorting to “quantitative easing” policies involving purchases of government and structured bonds on an unprecedented scale. Governments also launched various stimulus programmes aimed at boosting consumer and investment spending, vastly increasing fiscal deficits.
The difficult capital situation faced by many primary insurers at the beginning of 2009 created additional reinsurance demand as a means to relieve pressure on balance sheets
Reinsurers also enjoyed more stable premium income than primary insurance, avoiding some of its negative price trends and benefiting from increased reinsurance demand.
Corporate Centre expenses –295 –235 –20 Items excluded from the segments: Net investment income 575 316 –45 Net realised investment gains/losses –136 –433 – Foreign exchange gains/losses 1 338 –1 316 – Financing costs –1 501 –1 094 –27 Other income/expenses –126 –486 –
The absence of adverse prior year development improved the Accident combined ratio to 113.6% in 2009 from
 transfer of a closed book of business to Berkshire Hathaway in order to increase capital efficiency
Outlook In mature markets, sales of life insurance policies will depend on the strength of the economic recovery. In the longer term, pressure on public sector finances is likely to lead to a reduction in governmentsponsored benefits, increasing the need for individuals to buy risk and pension protection for themselves and their families.
Traditional life Operating income for traditional life business declined CHF 96 million, or 71%, to CHF 40 million. The decrease was primarily attributable to an unfavourable result from the discontinued variable annuity business of CHF 574 million, primarily due to modified estimated future cash flows, driven by current and expected lapse experience. Our hedging for expected variable annuity cash flows performed within expected parameters.
Our asset-liability matching function makes it essential that we have a dedicated, expert in-house rates team. This team manages almost CHF 80 billion of Swiss Re’s investment portfolio, in 19 currencies. Working closely with the CIO office, it ensures that we match our reinsurance liabilities effectively while generating an attractive investment return.
Shareholder structure For more information on Swiss Re’s shareholder structure, see Corporate governance, page 87.
In 2009, we successfully increased funds in the central liquidity pool and established a Group Asset-Liability Committee to oversee the management of Swiss Re’s balance sheet.
Liquidity position of Swiss Reinsurance Company Ltd We monitor Swiss Re’s liquidity position based on liquidity stress tests, as well as expected funding gaps over three-month and one-year intervals. Identification of potential funding requirements under stressed conditions enables appropriate management actions to ensure that the Group can withstand such events and meet payment obligations. Our core liquidity policy is to pre-fund the potential funding requirements arising from various stress events. This is achieved by maintaining excess liquidity in the form of unencumbered liquid assets and cash within a central pool of entities. This pool comprises the Group’s parent company – Swiss Reinsurance Company Ltd – as well as subsidiaries whose funds are freely transferable to the parent company. This excess liquidity, referred to as “spot liquidity”, is intended to allow Swiss Re to meet its funding obligations in a liquidity crisis, assuming a drop in funding from new reinsurance business, without having to rely on other asset sales or unsecured external funding.
Based on these internal liquidity stress tests, we estimate Swiss Re held surplus spot liquidity on 31 December 2009.
Group capital requirement based on one-year 99% Tail VaR CHF billions, as of 31 December 2008 2009 Change in %
In 2009, exposure to each of these events was affected mainly by changes in retrocession and securitisation in line with our risk appetite (increases in coverage for Californian earthquake and decreases in coverage for European windstorm and Japanese earthquake). In the case of Californian earthquake, we also actively reduced business written.
The reduction in sensitivity to credit spread widening in 2009 was mainly due to de-risking in Legacy. As is the case for real estate, equity market sensitivity is unchanged; the equity scenario includes traded equities, equity derivatives, alternative investments, guaranteed minimum death benefit products (including variable annuities) and funding obligations arising from equity holdings in Swiss Re pension funds. The substantial increase in interest rate sensitivity is due to the decision to take a short position against economic liabilities to protect our US GAAP balance sheet and Solvency I position against the risk of rising interest rates.
We distinguish between three types of credit exposure: the risk of issuer default from instruments in which Swiss Re invests or trades, such as through corporate bonds; counterparty exposure in a direct contractual relationship, such as retrocession or over-the-counter (OTC) derivatives; and risk assumed by Swiss Re through reinsurance contracts, such as trade Credit and Surety reinsurance business. Credit risk is viewed separately from credit spread risk, which is included under financial market risk.
The Board of Directors assesses the Group’s corporate governance on an annual basis against relevant best practice. It receives updates on developments affecting corporate governance from selected jurisdictions and considers the relevant studies and surveys on corporate governance such as the Walker Report, a review of corporate governance in the financial services industry in the UK, for its assessment.
Client Markets ̤ Europe ̤ Americas ̤ Asia ̤ Insurance & Specialty ̤ Global Admin Re®
In 1989, Walter B. Kielholz joined Swiss Re, Zurich. He became a member of the Executive Board in January 1993 and was Swiss Re’s Chief Executive Officer from 1 January 1997 to 31 December 2002. A Board member since 1998, he was Executive Vice Chairman of the Board of Directors from 2003 to 2006 and Vice Chairman from 2007 to April 2009. He was nominated Chairman with effect from 1 May 2009.
He is a former member of the Bank Council of the Swiss National Bank and a past Vice Chairman of the Board of Directors of the Swiss Bankers Association. He was also a member of the Committee of the Board of Directors of the Swiss Stock Exchange and the International Capital Markets Advisory Committee of the Federal Reserve Bank of New York.
Jakob Baer, a Swiss citizen born in 1944, became an attorney-at-law in 1971 and graduated from the University of Bern in 1973 with a doctorate in law.
Raymond K. F. Ch’ien was elected to Swiss Re’s Board of Directors at the Annual General Meeting of 18 April 2008.
Board of Directors The Board of Directors held 11 regular and three extraordinary meetings in 2009. Six resolutions were taken by written agreement. The meetings lasted 4.5 hours on average. The average attendance rate was 97.5% throughout the year. The meetings were attended by members of the Board and, in an advisory capacity, by the members of the Executive Committee as well as the Head of Legal and the Company Secretary.
The Compensation Committee had already undertaken a comprehensive review of the executive incentive approach three years earlier and noted that the innovative approach adopted at that time continued to be appropriate in light of regulatory requirements prevailing in 2009. In particular the Value Alignment Incentive, which brought variable compensation into line with the multi-year performance of the reinsurance business by deferring a significant portion of the Annual Performance Incentive. This approach conformed with the widespread adoption of clawback within annual performance incentive schemes. The Compensation Committee remains determined to further strengthen compliance with emerging regulation, for example by basing the performance assessment not only on financial results but also by making full use of additional metrics especially with regard to risk taking.
Compensation Committee procedures Management is responsible for putting forward compensation and benefit plan changes and proposals for individual compensation. The Compensation Committee’s role is to consider these proposals; it may either accept the proposals, suggest amendments, or decline the recommendations. The Committee will then either approve any changes or, where such authority is not delegated, propose them to the Board of Directors for approval. The Chairman of the Audit Committee and the Chairman of the Risk Committee are required to endorse the aggregate compensation pool of the respective control functions, as well as the individual compensation for the head of each function. In addition, they also provide input into the process of determining the overall Annual Performance Incentive pools from a risk, compliance and control perspective.
The Compensation Committee retains external advisors to support its work. The human resources consulting firm Mercer takes this role on specific compensation issues, providing information about remuneration trends and timely advice on executive compensation issues. Niederer Kraft & Frey provide legal advice, mainly about specific aspects of compliance. Both Mercer and Niederer Kraft & Frey are engaged directly by the Compensation Committee. The Compensation Committee may also, from time to time, appoint other external advisors.
Stefan Lippe, Chief Executive Officer1 66 121 David J. Blumer, Chief Investment Officer 27 000 Agostino Galvagni, Chief Operating Officer2 10 735 Brian Gray, Chief Underwriting Officer 15 912 Michel M. Liès, Chief Marketing Officer 62 931 George Quinn, Chief Financial Officer 19 703 1 Appointed Chief Executive Officer on 12 February 2009. 2 Appointed to the Executive Committee on 1 May 2009.
Compensation for the remaining members of the Board of Directors The remaining members of the Board of Directors receive a mandatory 40% of their fee in Swiss Re shares, with a four-year deferral period.
Interest on convertible perpetual capital instrument –217 Net income/loss attributable to common shareholders –864 506
Cash flows from investing activities Fixed income securities: Net purchase/sale/maturities of short-term investments 4 020 –4 511
On 9 April 2009, the FASB issued an accounting standard (FSP FAS 115-2 and FAS 124-2) that requires a company to recognise the credit component of an other-than-temporary impairment of a fixed maturity security in earnings and the non-credit component in accumulated other comprehensive income when a company does not intend to sell the security or it is more likely than not that the company will not be required to sell the security prior to recovery. The standard also changed the threshold for determining when an other-than-temporary impairment has occurred on a fixed maturity security with respect to intent and ability to hold until recovery. The standard requires additional related disclosures in interim and annual reporting periods. The Group chose to adopt the new standard early with effect as of 1 January 2009. The cumulative effects upon adoption are recorded in opening net unrealised gains/losses and retained earnings and are presented in the statement of shareholders’ equity. The new disclosure requirements are reflected in the income statement and in Note 2.
Proceeds from the sale of fixed income securities available-for-sale amounted to CHF 77 491 million and CHF 182 235 million for 2008 and 2009, respectively. Sale of equity securities available-for-sale were CHF 8 916 million and CHF 578 million for 2008 and 2009, respectively.
Balance as of 1 January 2009 586 Credit losses for which an other-than-temporary impairment was not previously recognised 1 070 Reductions for securities sold during the period –574 Increase of credit losses for which an other-than-temporary impairment has been recognised previously, when the Group does not intend to sell, or more likely than not will not be required to sell before recovery 453 Impact of increase in cash flows expected to be collected –19 Impact of foreign exchange movements –59
2 The Group has revised the presentation of the fair values of foreign exchange derivative assets and liabilities. The revision has no impact on balance sheet items, shareholders’ equity or net income. Fair values of foreign exchange derivative assets and liabilities under the same contract with the same underlyings, terms and counterparties are presented on a net basis. In prior quarters these were presented on a gross basis.
Financial statements / Notes to the Group financial statements 5 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
Amendments –130 –1 Actuarial gains/losses 27 –22 –235 275 –22 –14 Benefits paid –204 –219 –83 –70 –15 –14
Expected return on assets –152 –149 –118 –110 Amortisation of: Net gain/loss 9 6 7 –10 –12 Prior service cost 7 7 –11 –14 Effect of settlement, curtailment and termination 8 –9 –1 –11
CHF millions, for the year ended 31 December 2009 Property & Casualty Life & Health Asset Management Allocation
The Group has reassessed the classification of certain investment vehicles and determined that certain private equity and hedge fund participations do not actually qualify as VIE’s and therefore have now been excluded from the disclosure in both years presented. The changes have no impact on the Group’s earnings or balance sheet as the conclusion on consolidation of these entities has remained unchanged.
On 18 January 2010, the Group announced the closing of a US individual life retrocession transaction with Berkshire Hathaway. Under the terms of the contract the Group will, on a 100% quota share basis, reinsure a closed block of yearly renewable term individual life reinsurance business, written prior to 2004, with Berkshire Hathaway Life Insurance Company of Nebraska. The transaction is effective 1 October 2009 and will be reported by the Group in the first quarter of 2010. The Group will continue to provide administration and reporting services for the subject business.
Furthermore, payables towards Swiss Re Group companies included in “Other liabilities” increased CHF 4.1 billion mainly as a result of a portfolio transaction with the German branch of a Swiss Re Group‘s Luxembourg entity.
Claims and claim adjustment expenses –13 331 –9 412 Life and health benefits –3 382 1 725
Unpaid claims are based on information provided by clients and own estimates of expected claims experience, which are drawn from empirical statistics. These include provisions for claims incurred but not reported. Unpaid insurance obligations are set aside at the full expected amount of future payment.
Fees in blocked shares 133 Performance shares1 1 500 1 These shares were awarded for a full-year cycle between two Annual General Meetings, and therefore also cover a period in 2010.
Base salary and allowances 8 417 8 822 Cash variable pay for performance 5 625 11 525
Raymond K.F. Ch’ien, Member 1 086 5 144 John R. Coomber, Chairman of the Finance and Risk Committee 116 633 124 302 Rajna Gibson Brandon, Member 12 986 16 821 Hans Ulrich Maerki, Member 7 762 16 789 Robert A. Scott, Chairman of the Compensation Committee 11 271 16 663 Peter Forstmoser, Former Chairman 132 398 Thomas W. Bechtler, Former member 13 081 Bénédict G.F. Hentsch, Former member 11 301 Kaspar Villiger, Former member 6 379
Weighted average share price in CHF as of grant date 82.85 86.29 86.24 16.74 Stefan Lippe, Chief Executive Officer 8 750 David J. Blumer, Chief Investment Officer 81 000 54 000 149 342 Brian Gray, Chief Underwriting Officer 750 Michel M. Liès, Chief Marketing Officer 3 750 Raj Singh, Chief Risk Officer 4 000 4 000 Jacques Aigrain, Former Chief Executive Officer 13 750 Andreas Beerli, Former Head of Associated Units and Special Projects 7 500
On 14 August 2009, Plumbers’ Union Local No.12 Pension Fund, a Swiss Re shareholder, filed a second amended complaint in the federal securities class action lawsuit against Swiss Re, Swiss Re’s former Chief Executive Officer and Swiss Re’s Chief Financial Officer arising out of Swiss Re’s announcement, on 19 November 2007, that it would report a CHF 1.2 billion mark-to-market loss on two credit default swaps. The lawsuit is pending in New York Federal Court. Plaintiff alleges that defendants violated the anti-fraud provisions of the U.S. federal securities laws. Specifically, it contends that Swiss Re made false and misleading statements about its financial condition between March and November 2007, and that it failed to disclose that the Credit Solutions division had engaged in two credit default swaps that exposed the company to financial risk. Plaintiff seeks to certify a class of all U.S. residents or citizens that purchased Swiss Re stock between 1 March 2007 and 19 November 2007. Swiss Re plans to vigorously defend the lawsuit. On 4 September 2009, Swiss Re filed a motion to dismiss and requested oral argument. Plaintiff filed an opposition to that motion on 25 September, to which Swiss Re submitted a reply brief on 9 October. The parties await a date for oral argument and/or the Court’s decision on the motion to dismiss.
e. BlackRock, Inc., 40 East 52nd Street, New York, NY 10022, USA, notified Swiss Reinsurance Company Ltd, Mythenquai 50/60, 8022 Zurich, Switzerland, on 15 December 2009 that it held as of 1 December 2009, following the acquisition of Barclays Global Investors, through a number of its Group companies in the capacity of investment manager for mutual funds and clients 14 420 521 registered Swiss Re shares, representing 3.97% of the voting rights of Swiss Reinsurance Company Ltd which can be exercised autonomously of the beneficial owners.
The Company has revised its valuation principles to allow for valuation re-adjustments of previously recorded downward value adjustments up to the lower of historical cost or market value at the balance sheet date. In 2009, no valuation re-adjustments have been recognised in connection with this policy change.
Funds held by ceding companies – – – 1 612 – 1 612
The Group may not be able to secure new sources of liquidity or funding, should projected or actual liquidity fall below levels it requires. The ability to meet liquidity needs through asset sales may be constrained by market conditions and the related stress on valuations and through third party funding may be limited by constraints on the general availability of credit and willingness of lenders to lend. In addition, the Group’s ability to meet liquidity needs may also be constrained by regulatory requirements that require regulated entities to maintain regulatory capital or that restrict intra- group transactions, the timing of dividend payments from subsidiaries or the fact that certain assets may be encumbered or otherwise non-tradeable. Finally, any adverse ratings action could trigger a need for further liquidity (for example, by triggering termination provisions or collateral delivery requirements in contracts to which the Group is a party) at a time when the Group’s ability to obtain liquidity from external sources is limited by such ratings action.
Line of insurance which includes coverage for property in transit (cargo), means of transportation (except aircraft and motor vehicles), offshore installations and valuables, as well as liabilities associated with marine risks and professions.