Our annual report Our annual report consists of the Business Report and the Financial Report: Financial Report This publication provides a more detailed account of our financial performance during the year and the market trends we observe. It also provides details on risk and capital management, as well as information on our governance and compensation.
Global economy Global growth slowed in 2019 due to a contraction in global industrial output and trade. The rise in uncertainty stemming from the US-China trade dispute resulted in a downturn in business investment and manufacturing output across the world. In the US, real GDP growth decelerated to 2.3% in 2019 as the boost from fiscal stimulus faded. Growth in the Euro area also weakened significantly, falling to 1.2% from a solid 1.9% in 2018, with Germany hit the hardest. In the UK, the pace of economic growth remained close to a 10-year low at 1.4%, as uncertainty around Brexit continued to weigh on investment and manufacturing output. In contrast, Japan’s GDP growth accelerated slightly to 0.8% in 2019 from 0.3% in the previous year.
Overall profitability of the global life insurance sector – as measured by GAAP ROE of listed life insurance companies – was healthy at around 10%. Preliminary data for 2019 suggest a slight improvement from 2018. In response to the persistent low interest rate environment, life insurers are moving their product offering away from traditional savings-type policies towards protection products (eg critical illness, disability, long-term care) and unit-linked policies, where the investment risk is borne by the policyholders.
Net premiums and fees earned by business segment, 2019 Total: USD 38.6 billion
The Group reported a tax charge of USD 140 million on a pre-tax income of USD 909 million for 2019, compared with a tax charge of USD 69 million on a pre-tax income of USD 550 million for 2018. This translated into an effective tax rate in the current and prior-year reporting periods of 15.4% and 12.5%, respectively. The tax rate in 2019 was largely driven by tax benefits from effective settlement of tax audits and tax-exempt income, partially offset by tax charges from other incomebased taxes and non-deductible expenses.
Interest on contingent capital instruments, net of tax –41 –100 Net income attributable to common shareholders 761 899 18
A significant step in this transformation was the agreement to sell Life Capital’s UK closed book business, ReAssure, to Phoenix Group Holdings plc. As previously communicated, Swiss Re’s goal has been to deconsolidate ReAssure by reducing its ownership below 50%. The transaction, which is expected to close in mid-2020, subject to regulatory and antitrust approvals, valued ReAssure at GBP 3.25 billion. Earlier in the year, ReAssure agreed to acquire the UK closed book business of Quilter plc, adding over 0.2 million customer policies and GBP 12 billion of assets to ReAssure’s platform. This transaction closed on 31 December 2019.
Outlook Life Capital’s ambition is to increase access to the primary insurance risk pool through its fast growing B2B2C digital platform iptiQ and its Group L&H business elipsLife. The Business Unit applies leading-edge technology and smart use of data to offer affordable insurance products to more consumers. Life Capital's operations span Europe, the US, Australia, New Zealand, and going forward also China.
Weighting in indices As of 31 December 2019 Index weight (in %)
Life & Health Reinsurance reported an EVM profit of USD 1.8 billion in 2019, compared to a profit of USD 523 million in 2018. The EVM profit on new business of USD 1.3 billion reflected strong transactional business growth in EMEA and the Americas as well as core business performance in the Americas. The 2018 EVM profit of USD 980 million included two large transactions in New Zealand.
Expenses −252 −249 Net outperformance (underperformance) −943 3 788 Taxes 167 −810 Capital costs −911 −910 EVM profit – investments −1 686 2 068 EVM profit −693 −19 Cost of debt −67 −841 Release of current year capital costs 3 059 2 911 Additional taxes −133 881 Total contribution to ENW 2 166 2 932
Practitioner’s responsibility Our responsibility is to perform a reasonable assurance engagement to express a conclusion on the EVM financial information as set out on pages 40 to 47 in the Company’s 2019 Annual Report. We conducted our reasonable assurance engagement in accordance with International Standards on Assurance Engagements 3000 (Revised) ‘Assurance engagements other than audits or reviews of historical financial information’ issued by the International Auditing and Assurance Standards Board. This standard requires that we plan and perform this engagement to obtain reasonable assurance about the assurance conclusions.
Capital returned to shareholders since 2013 14.0 Reinsurance P&C 3.2 Reinsurance L&H 1.8 Corporate Solutions 4.2 Life Capital 1 Principal Investments has paid to Group dividends of USD 1.0bn between January 2013 and December 2019. 2 Reflects total external dividend and public share buyback programmes between January 2013 and December 2019.
External dividends to shareholders Based on the Group’s solid economic earnings, the Board of Directors proposes a regular dividend of CHF 5.90 per share for the 2019 financial year, up from CHF 5.60 in 2018.
4 Core capital of Swiss Re Group is defined as economic net worth (ENW). 5 Senior debt plus LOCs divided by total capital.
Risk culture is directly linked to Swiss Re’s performance management, which is based not only on business results but also on behaviours. Swiss Re’s compensation framework aims to foster compliance and support sensible risk-taking. Swiss Re also has a range of incentive programmes that reflect the long-term nature of its business by rewarding sustained performance rather than short-term results. This helps to align shareholder and employee interests.
Cyber risk In light of Swiss Re’s ever-increasing cyber risk exposure, cyber risk was added as a standing agenda item to the Finance & Risk Committee (FRC) meetings. In April 2019, the FRC was presented, in addition to an update on global cyber regulations, with the results of the yearly internal Cyber Risk Assessment which compares Swiss Re Group’s maturity with financial industry peers. In June 2019, the FRC discussed the positive results of testing Swiss Re’s cyber security stance (including red teaming, incident response simulations and table-top exercises) from both the attacker’s and defender’s point of view. In October 2019, the FRC discussed the three-year Cyber Defence Programme and considered next steps. Finally, the December meeting highlighted that cyber security is an ongoing journey, and as Swiss Re is a knowledge company based on data, security must be part of our DNA. While Swiss Re has launched its cyber defence successfully, a continuous focus is needed to strengthen and adapt its existing security capabilities to address the ever-changing threat landscape.
Swiss Re’s corporate governance framework ensures sustainability, fosters transparency and facilitates a quality assessment of the Swiss Re Group’s organisation and business. The Board of Directors has ultimate responsibility for the success of Swiss Re Ltd (SRL) and the Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of SRL and the Group and of the Group Executive Committee (Group EC), as well as for supervising compliance with applicable laws, rules and regulations. Such responsibilities are non-transferable and rest with the entire Board. The Board of Directors has delegated the management of SRL and the Group to the Group EC.
Board of Directors Composition in 2019 • At the Annual General Meeting on 17 April 2019, the shareholders re-elected Walter B. Kielholz for a further one-year term of office as a member and Chairman of the Board of Directors.
• Russell Higginbotham (former CEO Reinsurance Europe, Middle East and Africa (EMEA) and Regional President EMEA) was appointed CEO Reinsurance Asia and Regional President Asia with effect from 8 July 2019. He succeeds Jayne Plunkett who decided to pursue an new opportunity outside Swiss Re.
The company cannot exercise the voting rights of treasury shares. As of 31 December 2019, shareholders had registered 167 993 029 shares with the share register for the purpose of exercising their voting rights, out of a total of 327 404 704 shares issued.
Profit-sharing and participation certificates SRL has not issued any profit-sharing and participation certificates.
External mandates • Vice Chairman of the Board of Directors of Ahold Delhaize* • Board member of Colt Technology
Susan L. Wagner was elected to the Board of Directors of SRL in 2014. She chairs the Investment Committee and is a member of the Chairman’s and Governance Committee, the Nomination Committee and the Finance and Risk Committee.
Changes in 2019 The composition of the Board of Directors remained unchanged in 2019. All the members of the Board of Directors stood for re-election. At the Annual General Meeting on 17 April 2019, the shareholders re-elected Walter B. Kielholz for a further one-year term of office as a member and as Chairman of the Board of Directors. All other members of the Board of Directors were individually re-elected by the Annual General Meeting 2019 for a further one-year term of office as members of the Board of Directors: Renato Fassbind (Vice Chairman and Lead Independent Director), Raymond K.F. Ch'ien, Karen Gavan, Trevor Manuel, Jay Ralph, Joerg Reinhardt, Eileen Rominger, Philip K. Ryan, Sir Paul Tucker, Jacques de Vaucleroy, Susan L. Wagner and Larry Zimpleman. The Board of Directors consists of 13 members.
Regional representation 6 USA/Canada 2 Europe 2 Switzerland 1 USA/Canada 1 Europe 1 Switzerland
Committees of the Board of Directors As determined by the applicable Swiss Corporate law and the Articles of Association, the Board of Directors has inalienable and non-transferable responsibilities and authorities. The Board of Directors has established Board committees that support the Board in fulfilling its duties. The Board has delegated certain responsibilities, including the preparation and execution of its resolutions, to the following six committees: • Chairman’s and Governance Committee • Nomination Committee • Audit Committee • Compensation Committee • Finance and Risk Committee • Investment Committee
Investment Committee Responsibilities The Investment Committee endorses the strategic asset allocation and reviews tactical asset allocation decisions. It reviews the performance of the financial assets of the Group and endorses or receives information on participations and principal investments. It reviews the risk analysis methodology as well as the valuation methodology related to each asset class and ensures that the relevant management processes and controlling mechanisms in asset management are in place.
Group CEO, Group CFO, Group CRO, Group CLO, Group Chief Compliance Officer, Head Group Internal Audit, Chief Accounting Officer, lead auditors of external auditor, Group Company Secretary
General Meetings of shareholders • Convenes General Meetings of shareholders and decides on proposals to be brought forward to the shareholders
People Strategy • Has responsibility for the Group’s people management, subject to the authority of the Board of Directors
Edouard Schmid Swiss 55 Chairman Swiss Re Institute & Group Chief Underwriting Officer July 2017
John R. Dacey Group Chief Financial Officer Born: 1960 Nationality: American
Counsel Association • Advisory Board member of ARIAS Europe • Member of the Swiss-American Chamber of Commerce’s legal committee
J. Eric Smith Chief Executive Officer Reinsurance Americas/Regional President Americas Born: 1957 Nationality: American
Edouard Schmid Chairman Swiss Re Institute & Group Chief Underwriting Officer Born: 1964 Nationality: Swiss
SRL’s Articles of Association allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing or by the Independent Proxy. Such representatives need not be shareholders. Business firms, partnerships and corporate bodies may be represented by legal or authorised representatives or other proxies, married persons by their spouses, and minors and wards by their guardians, even though such representatives are not shareholders.
In accordance with the Financial Markets Infrastructure Act (FMIA), any party who acquires SRL shares which, added to those already owned, exceed the threshold of 33⅓% of SRL shares, either directly, indirectly or in concert with third parties, and regardless of whether these voting rights of such SRL shares are exercisable or not, triggers a mandatory takeover offer for the outstanding SRL shares owned by all other shareholders.
The FMIA allows companies to include an “opting up” provision in their articles of association, which raises the mandatory takeover offer threshold up to 49%, or an “opting out” provision, which waives the mandatory offer. SRL’s Articles of Association contain neither of these provisions.
Pay for performance The Compensation Committee ensures that Group EC compensation is linked to the business performance of Swiss Re by delivering a substantial portion of compensation in the form of performancerelated incentives.
The key objectives of Swiss Re’s benefits packages are to: • Provide a degree of security for employees as it relates to pension, health matters,
Unvested awards shall vest on the regular vesting date, subject to performance.
• The Board members do not receive variable or performance-based compensation.
Value Alignment Incentive VAI performance is measured for the Group and each underlying business area. The performance factor for each participant is determined based on the business area that the participant worked for on 31 December of the year preceding the award (see page 126 for a detailed description of the VAI). The VAI 2016 (awarded 2017) performance factor of 97.4% for the Swiss Re Group is based on the three-year average previous years’ business performance for years 2017, 2018 and 2019. The main drivers were previous years’ business reserve increases, especially for US casualty in Corporate Solutions and Property & Casualty Reinsurance. Business area performance factors for the VAI 2016 (awarded 2017) ranged from 68.0% to 103.8%.
those amendments (which apply to the Group CEO and Group EC members insured in Switzerland as well as all other employees insured in Switzerland), the figure disclosed for 2019 includes higher employer pension contributions and contributions to mitigate the effects of lower conversion rates.
Related parties transactions Disclosure on compensation decisions in 2019 covers members of the Board of Directors and the Group EC as indicated, and for both includes related parties to the extent applicable. Such related parties cover spouses, partners, children and other dependents or closely linked persons. In 2019, no compensation was paid to any related party.
At the AGM 2018, shareholders approved a prospective maximum aggregate amount of CHF 34.0 million for fixed compensation and variable long-term compensation for the financial year 2019 for the 12 members of the Group EC expected at the time of the AGM 2018 to hold such position in 2019.
1 Reconciliations calculated using December 2019 year-to-date FX rates where applicable.
Auditor’s responsibility Our responsibility is to express an opinion on the accompanying Compensation Report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Compensation Report complies with Swiss law and articles 14–16 of the Ordinance.
Tackling this issue effectively will be challenging. Therefore, we need a viable and adaptable action plan backed by a true multi-stakeholder effort. This plan will be key to developing orchestrated solutions, directing risk transfer products and investments to those areas with the greatest positive impact on enabling sustainable progress.
Achieving net-zero CO2 emissions1: In 2019, Swiss Re made three important commitments to achieving net-zero CO2 emissions: • Across the Swiss Re Group by 2050, by signing the UN Global Compact “Business Ambition for 1.5°C”
At Swiss Re’s highest governance level, three Board of Directors committees are charged with overseeing the implementation and execution of Swiss Re’s Climate Action Plan.
Re/insurance Annual expected losses (AEL) AEL for weather-related natural perils can be used as an indicator for our average current climate-related risk exposure. However, AEL figures do not, by definition, provide an adequate measure for the potential risk of individual years with intense natural catastrophe losses like in eg 2019, 2018 and 2017 (below table indicates our risk exposures to four major natural catastrophe scenarios, ie single-event losses with a 200-year return period). The AEL figures are the result of expected weather activities, the vulnerability of insured objects, their values and the volume and structure of our insurance products. Changes in the AEL figures will show the evolution of our climate risk exposure. This could be due to climate change, but also due to changes in the vulnerability of insured objects, their values or changes in our business strategy. AEL figures are updated on an annual basis.
By the end of 2019, we held USD 1.8 billion in green bonds. As part of our adaptation strategy, we expanded our mandate to also consider social and sustainability bonds. This enables us not only to support the environment, but also underserved groups or populations, thus generating a positive impact on society. Additionally, we increased the specific investment target to USD 4 billion, to be achieved by the end of 2024.
In line with TCFD guidelines, we monitor the carbon footprints of our corporate credit and listed equity portfolios on an ongoing basis as we have extended our internal tools to allow for interactive day-to-day analysis. We also monitor any coal-related activities in our private equity investments. For the carbon footprint, we use the metric “weighted average carbon intensity”, which defines the portfolio carbon intensity based on relative investment share.
You can find out more about the Greenhouse Neutral Programme in our 2019 Sustainability Report, pages 58–61.
Equity securities at fair value through earnings (including 480 in 2018 and 186 in 2019 subject to securities lending and repurchase agreements) 3 036 2 993 Policy loans, mortgages and other loans 4 542 3 021 Investment real estate 2 411 2 528 Short-term investments (including 552 in 2018 and 1 157 in 2019 subject to securities lending and repurchase agreements) 5 417 5 768 Other invested assets 6 398 7 343 Investments for unit-linked and with-profit business (including fixed income securities trading: 4 938 in 2018 and nil in 2019, equity securities at fair value through earnings: 23 123 in 2018 and 520 in 2019) 29 546 520
Investment in real estate that the Group intends to hold for the production of income is carried at depreciated cost, net of any write-downs for impairment in value. Depreciation on buildings is recognised on a straight-line basis over the estimated useful life of the asset. Land is recognised at cost and not depreciated. Impairment in value is recognised if the sum of the estimated future undiscounted cash flows from the use of the real estate is lower than its carrying value. The impairment loss is measured as the amount by which the asset’s carrying amount exceeds its fair value and is recognised in realised investment losses. Depreciation and other related charges or credits are included in net investment income. Investment in real estate held for sale is carried at the lower of cost or fair value, less estimated selling costs, and is not depreciated. Reductions in the carrying value of real estate held for sale are included in realised investment losses.
Modifications of insurance and reinsurance contracts The Group accounts for modifications of insurance and reinsurance contracts that result in a substantially unchanged contract as a continuation of the replaced contract. The associated deferred acquisition costs and present value of future profits (PVFP) will continue to be amortised. The Group accounts for modifications of insurance and reinsurance contracts that result in a substantially changed contract as an extinguishment of the replaced contract. The associated deferred acquisition costs or PVFP are written off immediately through income and any new deferrable costs associated with the replacement contract are deferred.
In the fourth quarter of 2019, the Group entered into an agreement to sell its subsidiary ReAssure Group plc, currently within the Life Capital business segment, to Phoenix Group Holdings plc. For more details on the transaction, please refer to Note 11 “Assets held for sale“.
Expenses Claims and claim adjustment expenses –11 614 –3 241 –14 855 Life and health benefits –10 280 –1 489 –11 769 Return credited to policyholders –5 1 038 1 033 Acquisition costs –4 012 –2 045 –607 –255 –6 919 Operating expenses –1 114 –758 –763 –549 –599 351 –3 432
Expenses Claims and claim adjustment expenses –4 284 –5 860 –1 470 –11 614 Acquisition costs –1 189 –2 228 –595 –4 012 Operating expenses –547 –388 –179 –1 114
Income/loss before interest and income tax expense 9 –812 158 1 400 755 Interest expenses –313 –313
196 Swiss Re | Financial Report 2019 c) Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2018 Life Health Unallocated Total USD millions
Retrocession to external parties –1 –1 2019 Property & Casualty Reinsurance
Acquisition costs For the year ended 31 December 2018 Property & Casualty Reinsurance
Incurred related to: Amortisation of deferred expense on retroactive reinsurance and impact of commutations −41 −23
A summary of prior year net claims and claim adjustment expenses development by lines of business for the years ended 31 December is shown below1: Line of business: Property –340 367 Casualty 428 1 425 Specialty –295 105 Life and health 249 334 1 Adverse development is shown as positive numbers, and represents a charge to the income statement. Favourable development is shown as negative, and represents a credit to the income statement.
At the end of 2019, the Group carried net reserves for US asbestos and environmental liabilities equal to USD 1 584 million. During 2019, the Group incurred net losses of USD 32 million and net paid of USD 308 million in relation to these liabilities.
Property & Casualty Reinsurance – Motor, non-proportional Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions Reporting year Accident year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
As of 31 December 2019, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 3.2 billion. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.
Effect of settlement, curtailment and termination –26 –26 Exchange rate gain/loss recognised during the year 3 3
Real estate positions classified as level 1 and level 2 are exchange-traded real estate funds where a market valuation is readily available. Real estate reported on level 3 is property owned by the pension funds. These positions are accounted for at the capitalised income value. The capitalisation based on sustainable recoverable earnings is conducted at interest rates that are determined individually for each property, based on the property’s location, age and condition. If properties are intended for disposal, the estimated selling costs and taxes are recognised in provisions. Sales gains or losses are allocated to income from real estate when the contract is concluded.
Assets measured at fair value using significant unobservable inputs (level 3) For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows: 2018 USD millions Real estate Other assets Total
Contributions made to defined benefit pension plans and post-retirement benefit plans are disclosed in Note 16 ‘‘Benefit plans’’. Plan assets of the defined benefit pension plans include Swiss Re common stock of USD 4 million (0.1% of total plan assets) and USD 3 million (0.04% of total plan assets) as of 31 December 2018 and 2019, respectively.
Actuarial assumptions selected by the Company with respect to interest rates, inflation trends, investment returns, mortality, morbidity, lapse in coverage, longevity, persistency, expenses, stock market volatility and future policyholder behaviour may result in material impacts on the valuation of L&H reserves. The methodology and methods used can also have a material impact on the valuation of actuarially determined L&H reserves.
5 Swiss Re Ltd | Report of the statutory auditor to the General Meeting
In relation to the matters set out opposite, our substantive testing procedures included the following:  Involving our own tax specialists to critically review the Company’s ‘more likely than not’ tax assessments and to evaluate the Company’s judgments and estimates of the probabilities and the amounts.
Expenses Administrative expenses 3 –133 –143 Investment expenses 2 –870 –1 893 Other expenses –107 –105 Total expenses –1 110 –2 141
As of 31 December 2019, the Company’s assets for derivative financial instruments carried at market value amounted to CHF 101 millions.
The Company has established subordinated debt facilities which allow the Company to issue subordinated callable notes at any time. The Company pays a fee on the available commitment under the facility and an interest rate on issued notes. Notes, when issued, will be classified as subordinated debt. As of 31 December 2018 and 2019, no notes have been issued under the facilities.
The Company has entered into subordinated funding facilities with its subsidiary Swiss Reinsurance Company Ltd under which Swiss Reinsurance Company Ltd has the right, among others, to issue subordinated notes to the Company at any time. For its various rights, Swiss Reinsurance Company Ltd owes the Company an unconditional fixed commitment fee on the total facility amount, payable in annual instalments. Annually, Swiss Reinsurance Company Ltd receives a partial reimbursement of the commitment fee on the undrawn facility amount. As of 31 December 2018 and 2019, the facilities were undrawn.
Section of cover in a non-proportional reinsurance programme in which total coverage is divided into a number of consecutive layers starting at the retention or attachment point of the ceding company up to the maximum limit of indemnity. Individual layers may be placed with different insurers or reinsurers.
Net underwriting result from new business is defined as the gross underwriting result from new business net of the present value of internal expenses allocated to new business but before taxes and capital costs.
Premiums and fees in the EVM income statement represent the present value of all estimated future premiums and fees on contracts written during the year. Gross premiums and fees represent premiums and fees before external retrocessions. Gross premiums and fees in the EVM income statement of the business segments also exclude retrocessions to other segments of the Group.
Principal Investments and Acquisitions is a unit of Swiss Re that manages all strategic acquisition activities of the Group as well as a portfolio of minority holdings in primarily insurance and insurance-related businesses with the goal of generating long-term value.
�50% P&C Reinsurance 34% L&H Reinsurance 11% Corporate Solutions 5% Life Capital
Investment result The return on investments was 4.3% for 2019 up from 2.4% in 2018, reflecting an increase in the investment result of USD 1 080 million, mainly driven by additional net realised gains.
Net realised gains were USD 985 million for 2019 compared with net realised losses of USD 63 million for the prior period. The increase was driven by both additional gains on sales of fixed income securities and market value gains on equity securities, given strong equity market performance.
Net realised gains were USD 84 million, up from net realised losses of USD 24 million in 2018. The current year result benefited from realised gains from sales of fixed income securities and market value gains on equity securities.
Combined ratio The Business Unit’s combined ratio increased to 127.9% in 2019 from 117.5% in 2018, mainly due to large and mediumsized man-made losses from prior accident years and reserve increases as part of the management actions taken in 2019.
In the open book business, Life Capital continues to use technology to enable both elipsLife and iptiQ to achieve efficiencies and profitable growth and focuses on expanding both platforms globally. In 2019, the strong growth in these businesses continued, with gross written premiums increasing 22% year-on-year when measured at constant exchange rates.
Earnings per share in CHF3 Basic 14 1.34 2.46 Diluted 14 1.34 2.40 1 Total impairments for the years ended 31 December of nil in 2018 and of USD 80 million in 2019, respectively, were fully recognised in earnings. 2 Total impairments for the years ended 31 December of USD 16 million in 2018 and of USD 10 million in 2019, respectively, were fully recognised in earnings. 3 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
3 Impact of ASU 2016-02 ‘‘Leases’’. Please refer to Note 1 ‘‘Organisation and summary of significant accounting policies‘‘ for more details.
46 Swiss Re | Financial Review 2019 c) Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2018 Life Health Unallocated Total USD millions
Total expenses before interest expenses –9 245 –4 225 0 –13 470
Net unpaid claims and claim adjustment expenses; life and health benefits –1 351 –740 –744 1 056 –1 779
54 Swiss Re | Financial Review 2019 4 Premiums written For the years ended 31 December 2018 Property & Casualty Reinsurance
Paid related to: Current year −9 344 −9 702 Prior year −15 501 −18 008
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 otherthan -temporary impairments is defined as the difference between a security’s amortised cost basis and the present value of 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.
Depreciation expense related to investment real estate was USD 57 million and USD 61 million for 2018 and 2019, respectively. Accumulated depreciation on investment real estate totalled USD 609 million and USD 660 million as of 31 December 2018 and 2019, respectively. Investment real estate held by the Group includes residential and commercial investment real estate.
Gross amount of recognised liabilities for repurchase agreements and securities lending 4 274
The Group’s investments in equity derivatives primarily include OTC equity option contracts on single or baskets of market indices and equity options on individual or baskets of equity securities, which are valued using internally developed models (such as the Black-Scholes type option pricing model and various simulation models) calibrated with the inputs, which include underlying spot prices, dividend curves, volatility surfaces, yield curves and correlations between underlying assets.
Purchases 417 16 20 453 0 Issuances 0 –147 –147 Sales –56 –9 –46 –2 –113 24 24 Settlements –82 –37 –119 60 60 Transfers into level 31 2 2 0 Transfers out of level 31 –76 –76 0 Impact of foreign exchange movements 38 2 7 7 54 –5 –5
As of 31 December, the carrying values of the hedged assets and liabilities, and the cumulative amounts of fair value hedging adjustments included there within, recognised in the balance sheet, were as follows: 2019 Cumulative basis USD millions Carrying value adjustment
86 Swiss Re | Financial Review 2019 12 Debt and contingent capital instruments The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is classified accordingly.
market values fall, the financial exposure on guarantees related to these contracts would increase to the extent this exposure is not hedged. While the Group has an extensive hedging programme covering its existing variable annuity business that it believes is sufficient, certain risks cannot be hedged, including actuarial, basis and correlation risks. Exposure to foreign exchange risk arises from exposures to changes in spot prices and forward prices as well as to volatile movements in exchange rates.
Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that management uses, including as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements, including assumed and ceded business. For example, the Group estimates premiums pending receipt of actual data from ceding companies, which actual data could deviate from the estimates. In addition, particularly with respect to large natural catastrophes, it may be difficult to estimate losses, and preliminary estimates may be subject to a high degree of uncertainty and change as new information becomes available. Deterioration in market conditions could have an adverse impact on assumptions used for financial reporting purposes, which could affect possible impairment of present
So why do we remain confident? Because Swiss Re has the expertise and the network required to consistently assess the situation from all angles and to adapt capital allocation strategies accordingly. We use our proprietary Economic Value Management (EVM) method to assess the performance of various risk portfolios, along with the factors derived from research by Swiss Re Institute. We acquire information through our cooperation with clients, be it insurance companies in every corner of the world, large industrial companies and service providers or the world’s best asset managers, as well as from our work with our high-level strategic advisory body, the Swiss Re Strategic Council.
We have a deep understanding of the risk landscape and anticipate how it will evolve in the future.
Our strategy remains unchanged – we aim to achieve our financial targets and deliver value for all stakeholders.
We have made a public commitment to reach net-zero emissions in our re/insurance business by 2050. In line with this, we have taken further steps towards decarbonising our own business model.
Unlike traditional insurance covers, which often require loss investigations, FLOW pays fixed amounts based on a customised index, tracking each client’s water level exposure.
Swiss Re’s financial capacity has allowed payouts to be made even in the more challenging years, while key agricultural and climate expertise has paved the way for the programme to be expanded over time to new provinces and various types of crops.
In Singapore, one in every four working adults is part of the ”sandwich generation“ – those who are “sandwiched” between taking care of their ageing parents and their children. Longer lives, rising cost of living and other trends are adding to the pressure on these caregivers.
for purposes of financial reporting, particularly with respect to large natural catastrophes and certain large man-made losses, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available; • legal actions or regulatory investigations or actions, including in respect of industry requirements or business conduct rules of general applicability; • the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings, and the overall impact of changes in tax regimes on the Group’s business model;
Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the International Reporting Standard on SIX Swiss Exchange, domiciled in Zurich, and organised under the laws of Switzerland. No other Group companies have shares listed.
Furthermore, we promote sustainable practices in our own operations to demonstrate good stewardship, lead by example and drive long-term performance. We have adopted a holistic strategy to responsible investing, including investment practices for our assets to consider environmental, social and governance (ESG) criteria in our investment decisions. Limiting global warming is part of this effort, and we are reinforcing it by further reducing our own carbon footprint across our operations, investments and re/insurance offerings.
We are implementing our Group Sustainability Strategy through a structured process and are currently working on bringing it to life by defining targets, metrics and actions for our three 2030 Sustainability Ambitions. Adopting a sequential approach, we have first started to develop a Climate Action Plan, which also serves as our climate strategy (see below).
• Financial community: investors/ shareholders, rating agencies, shareholder associations, stock exchanges
• New: As a member of the Insurance Development Forum (IDF), collectively commit to offer up to USD 5 billion of risk capacity for climate risk insurance benefiting up to 500 million individuals by 2025.
• Completed a number of innovative transactions providing insurance protection to smallholder farmers against various natural perils, eg in Mexico, China and Cambodia (pages 26–29).
• We develop digital best practices, integrate ethical aspects into our digital business and provide solutions to manage the risks of digital societies.
• By the end of 2019, covered 92% of our power consumption from renewable sources (page 59).
To help manage these financial risks, we co-developed, with our local Asian insurance partners, an award-winning product that breaks new ground by providing cover to the policyholder, as well as their children and parents. Customers can get insurance against mortality, disability and a host of critical illnesses. Coverage is included automatically for the policyholder’s children and parents without them having to go through medical checkups – the policyholder just needs to register the family members to be covered. This is a breakthrough in providing a smoother and more efficient customer experience and simplifies the underwriting process for insurance buyers.
Helping our life insurance clients take advantage of the benefits of underwriting automation, as well as removing lengthy paper-based application processes and reducing errors and omissions, Swiss Re’s Magnum Go allows for a leaner and more efficient distribution approach. Ultimately, this scalable digital solution increases ease of access to life insurance, thereby helping to close the protection gap and contributing to better individual and social welfare.
Our commitment to reach net-zero emissions In 2019, we made a public commitment to reach net-zero emissions by 2050 across our whole business, by signing the UN Global Compact Business Ambition for 1.5°C. This joins our active role as a founding partner of the UN-convened Net-Zero Asset Owner Alliance, through which we have also made a net-zero commitment specifically for our investment portfolio by 2050 (see page 47).
We regularly review all the policies and guidelines of our Sustainable Business Risk Framework to ensure they stay abreast of relevant new risk developments and stakeholder expectations. In 2019, we continued with the implementation of our thermal coal policy, engaging with over 300 clients in the process, and revised our oil and gas policy. These improvements to the Sustainable Business Risk Framework form an important part of the efforts we have taken towards gradually decarbonising our business model (see pages 33–34).
In 2018, however, the number of referrals rose from 178 to 247 (see chart above). This increase was mainly driven by the introduction of our thermal coal policy. Many of the coal-related referrals were submitted by our underwriters to have the thermal coal exposures of specific transactions clarified. In 2019, the number of referrals fell again, to 238 transactions. Of those we issued negative recommendations in 37 cases and positive recommendations with conditions in 42 cases.
Developing fast as a real and present-day problem, emerging L&H risks connected to climate change not only impact traditional L&H covers, but are also a concern in the context of workplace accident insurance. The most significant impacts are expected from the following causes: changing patterns in infectious diseases, which increase the likelihood of pandemics; more frequent heat days leading to more strokes, cardiovascular problems and accidents; and a rise in respiratory and other chronic diseases.
Major impacts are also expected for public health systems, eg due to famine and migration, and the vulnerability of the healthcare sector may thus increase. Hospitals and other critical health infrastructures are not only dependent on professional care providers, but also on basic sanitary conditions, power supplies etc – all of which are themselves becoming more vulnerable to climate change effects.
Further activities on emerging risks identified in the past The emerging risks we have previously examined in more detail and featured in our former Corporate Responsibility Reports since 2007 are: 2007: Electromagnetic fields 2008: Critical infrastructure 2009: Carbon nanotubes 2010: Smart grids 2011: Cyber attacks 2012: 3D printing 2013: New forms of mobility 2014: Electronic cigarettes 2015: The Internet of Things 2016: Human-induced earthquakes 2017: Antimicrobial resistance 2018: Algorithmic decision-making
“We make the world more resilient” is Swiss Re’s vision. More than ten years ago, our Asset Management unit embarked on a journey to not only generate risk-adjusted, stable long-term returns, but to also consider environmental, social and governance (ESG) aspects in our investment decisions. With this approach, our Asset Management has been contributing to the Group’s vision.
The policy is reviewed periodically and updated if required. It is complemented by the Swiss Re Asset Management Voting and Engagement Policy, which provides guiding principles that apply to all our voting and engagement activities and is consistent with regulatory developments such as the Shareholder Rights Directive 2017/828 (SRD II). It rounds off the integration of our Enhancement approach and specifically expresses our commitment to our role as an active shareholder.
Swiss Re’s Head Responsible Investing (Head RI), with support of a dedicated team, develops and coordinates the implementation of the Responsible Investing strategy within the unit. As part of this, the Head RI steers the ESG Advisory Board, a committee formed by representatives of all investment units as well as Legal, Compliance and Group Risk Management. The ESG Advisory Board reports on responsible investment activities in the various investment units, develops and reviews improvement ideas, shares knowledge and monitors implementation progress.
5% No votes cast 95% Votes cast 2% No votes cast 98% Votes cast 2% Abstained 0% Votes withheld 88% Voted with management 10% Voted against management 1% Abstained 0% Votes withheld 93% Voted with management 6% Voted against management
• We hosted the fourth annual Oasis conference in Zurich. Oasis is an opensource catastrophe modelling platform that eases the exchange of models in the re/insurance industry. It reflects the industry’s willingness to join forces and control rising costs by providing access to new and existing model providers, ultimately enhancing the diversity of models and risk views.
• As part of our Digital Ecosystems Series (September 2019), we published the research report titled “Health ecosystems: striving towards an integrated and seamless patient experience”. The study not only found that re/insurers can play a key role in disease prevention, supported by digitally integrated health ecosystems, but also that such digital ecosystems allow for higher quality and better health outcomes for patients, at lower costs.
Below are some further sustainabilityrelated highlights of our stakeholder dialogue in 2019: • Swiss Re’s Head Property & Specialty
In 2019, we supported the finalisation of a three-year research project on “Between Solidarity and Personalization – Dealing with Ethical and Legal Big Data Challenges in the Insurance Industry”, conducted by researchers at the University of Zurich and the University of Applied Sciences HTW Chur. The project was funded by Switzerland’s National Research Programme 75 on “Big Data”. The final report has been published and is available at www.nfp75.ch/en/projects/module-2societal -and-regulatory-challenges/ project-christen.
• With GEM Foundation (www.globalquakemodel.org), we create global, transparent, uniform hazard and risk models, and open-source software for seismic risk assessment.
RECs, GOs, residual mix 1 All Swiss electricity producers are required by law to declare the quality and quantity of the electricity produced. Swiss Re buys 100% green-labelled electricity (naturemade star).
Reducing energy consumption In parallel with our switch to using renewable power, we have made continuous efforts to lower the actual amount of energy consumed per employee (FTE) or, in other words, to reduce our energy intensity. Through many small measures to improve energy efficiency and by concentrating back-office tasks in fewer and more energy-efficient buildings, we managed to cut our energy intensity by a total of 46.5% between 2003 and 2013.
Carbon removal is still a nascent industry. Our early engagement will help it grow and deliver at scale by 2050. It will, however, not be feasible to buy highquality removal certificates for all our emissions immediately. Any surplus funds generated through the carbon steering levy will be channelled back to our business for sustainability-focused initiatives.
We continuously monitor all travel budgets and collect travel data centrally. Furthermore, we introduced an internal carbon price on air travel in 2014, which uses the “polluter pays” principle. It allocates the costs of the Verified Emission Reductions (VERs) we need to buy to offset our CO2 emissions to the Group’s Global Functions in proportion to their respective share of air travel; previously they had been borne centrally by Group Finance.
3 436 COyou2 subsidies granted to our employees in 2019 aware of climate change. The programme offers subsidies for a range of investments through which our employees can reduce their private carbon footprints. To our knowledge, it was the first global corporate initiative of its kind at the time.
Our vision is to offer our employees meaningful work with a clear purpose in an attractive, flexible and inclusive work environment where everyone can contribute. Our organisation is constantly looking for new ways to improve the wellbeing of society and prepare for the changing needs of the future, drawing on the know-how and experience of a diverse, multigenerational group of employees. We look to collaborate in the spirit of “Let’s be smarter together”, convinced that only by doing this we can maximise our full potential. We are passionate about building an environment of trust, respect, collaboration and responsibility, in which how we achieve results is every bit as important as what we achieve.
The strategy has four core themes: • Lead and develop: We aim to be known in the market for both our technical expertise and our leadership capabilities. Our employees inspire and engage each other across all levels through honest, constructive and timely dialogue and feedback. We invest in the career development of our people, which we see as a shared responsibility, with leaders investing their time and resources and employees taking ownership to drive their development.
Over a period of 18 months, the graduates receive on-the-job training in their respective functions. We have recently introduced a modern learning experience and encourage more on-the-job learning. These training sessions are specifically designed for the programme and focus on Swiss Re’s core business areas. The programme was first launched in 2007, and we still have 380 graduates working for Swiss Re from this 12-year period.
Owning the way we work Our trademarked programme Own the Way You Work is a cultural initiative which gives our managers and employees autonomy to decide how, when and where they carry out work, in compliance with the applicable laws, rules and regulations of their particular region. Coupled with cutting-edge technology and flexible workplace solutions, the programme shapes an ambitious and creative company culture, where everyone can perform at their best.
Rewarding our people Our compensation framework is designed to attract, motivate and retain the qualified talent the Group needs to succeed globally and to create a tangible link between performance and pay. The aim is to provide compensation that is competitive in local labour markets and to ensure that our employees focus on delivering outstanding results while supporting appropriate and controlled risk-taking.
Swiss Re has several incentive programmes that reflect the long-term nature of our business: both the Value Alignment Incentive Plan (VAI), as the deferred part of the API, and the Leadership Performance Plan (LPP) aim to reward sustained business performance rather than short-term results. This helps align shareholder and employee interests more closely. The VAI applies to employees who have a total API in excess of a defined threshold, and the LPP is awarded to our senior management and select key employees.
Policies Our Code addresses the following key compliance topics under two headings, “Our responsibility towards one another and Swiss Re” and “Our responsibility towards our business partners and society”: Our responsibility towards one another and Swiss Re
• Bribery and corruption • Data protection • Inside information • Fair competition • International trade controls and economic sanctions • Licensing and permanent establishment • Money laundering • Sustainability and human rights
You can learn more about our approach to compliance and integrity at: www.swissre.com/about-us/corporategovernance /Compliance.html
Below we present additional information on some key topics in the Code: Bribery and corruption The Code addresses our position on bribery and corruption. It clearly states that “we conduct business fairly without accepting or offering benefits intended to improperly influence decision-making”.
We also contribute thought leadership on data protection by conducting expert sessions during insurance industry events and by hosting events through the Swiss Re Institute that look at the future of regulations, new technologies, digitalisation, crossborder data processing, big data and innovation in life and health insurance. We offer additional information about our global data protection and privacy approach on our public website.
How we’re improving basic healthcare delivery with our partner Living Goods page 4
• The consolidated data and information disclosed in the Financial Report 2019 in the sections “Climate-related financial disclosures (TCFD)” on page 152, “Climate governance” on page 153, “Climate strategy” on pages 154–161, “Climate risk management” on pages 162–163, “Climate metrics and targets” on pages 164–167.