Investments The Group’s investments in fixed income securities, other than those investments considered to be short term investments, and equity securities are classified as available-for-sale (AFS). Fixed income securities AFS and equity securities AFS are carried at fair value, based on quoted market prices, with the difference between the applicable measure of cost and fair value recognised in shareholder’s equity.
In June 2013, the FASB issued ASU 2013-08, “Amendments to the Scope, Measurement, and Disclosure Requirements”, an update to Topic 946, “Financial Services - Investment Companies”. ASU 2013-08 changes the approach to the investment company assessment in Topic 946, clarifies the characteristics of an investment company, and provides comprehensive guidance for assessing whether an entity is an investment company. The Group adopted ASU 2013-08 on 1 January 2014. The adoption did not have an effect on the Group’s financial statements.
Expenses Claims and claim adjustment expenses –609 –692 –384 –44 –1 729 Acquisition costs –151 –89 –87 –85 –412 Other expenses –193 –208 –76 –36 –513 Total expenses before interest expenses –953 –989 –547 –165 –2 654
Compañía Aseguradora de Fianzas S.A. Confianza On 4 November 2014, Swiss Re Corporate Solutions completed the acquisition of 51% of the outstanding common shares of Compañía Aseguradora de Fianzas S.A. Confianza (referred to as “Confianza”). Confianza offers a broad range of surety insurance products, third-party liability and all-risk construction insurance solutions. The results of the operations of Confianza have been included in the consolidated financial statements since 4 November 2014. This transaction supports the Group’s growth strategy and will enable it to expand business in Latin America through local representation.
Fixed income securities available-for-sale: Gross realised gains 48 25 Gross realised losses –32 –13
Mortgage-and asset-backed securities 481 12 –6 487 Fixed income securities available-for-sale 4 578 44 –71 4 551 Equity securities available-for-sale 791 178 –3 966 2014 USD millions
Values of mortgage and asset-backed securities are obtained both from third-party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Values of certain asset-backed securities (ABS) for which there are no significant observable inputs are developed using benchmarks to similar transactions or indices. The two primary categories of mortgage and asset-backed securities are residential mortgagebacked securities (RMBS) and commercial mortgage-backed securities (CMBS). For both RMBS and CMBS, cash flows are derived based on the transaction-specific information, which incorporates priority in the capital structure, and are generally adjusted to reflect benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography, credit enhancements, and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgments may be required to determine comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region, such as debt service coverage and loan-to-value ratios, as well as the type of commercial property. Mortgage and asset-backed securities also includes debt securitised by credit card, student loan and auto loan receivables. Pricing inputs for these securities also focus on capturing, where relevant, collateral quality and performance, payment patterns, and delinquencies.
Closing balance as of 31 December 40 0 21 61 0 0 2014 USD millions
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: Sensitivity of recurring level 3 measurements to changes in unobservable inputs The significant unobservable input used in the fair value measurement of the Group’s environmental commodity contracts is a risk margin. Significant increase (decrease) in this input in isolation would result in a significantly higher (lower) fair value of the Group’s obligation.
Derivative financial instruments ECM/Weather contracts 1 269 11 –72 –61 Total derivative financial instruments 1 269 11 –72 –61
Report of the statutory auditor on the consolidated financial statements We have audited the accompanying consolidated financial statements of Swiss Re Corporate Solutions Ltd and its subsidiaries, which comprise the consolidated balance sheet as of 31 December 2014, and the related consolidated income statement, statement of comprehensive income, statement of shareholders’ equity, statement of cash flow and notes (pages 2 to 38) for the year then ended.
Income from subsidiaries and affiliated companies 111 138 Income from fixed income securities 14 20 Income from shares in investment funds 2 1 Income from short-term investments 2 1 Income from investment services 0 1 Realised gains on sale of investments 0 38 Investment income 129 199
As of 31 December 2014, securities of CHF 999 million (2013: CHF 533 million) were lent to Swiss Re Group companies under securities lending agreements. As of 31 December 2014 and 2013, there were no securities lent to third parties.
Liquidity risks The Group’s business requires, and its clients expect, that it has sufficient capital and sufficient liquidity to meet its insurance obligations, and that this would continue to be the case following the occurrence of any event or series of events, including extreme catastrophes, that would trigger insurance coverage obligations. The Group’s uses of funds include obligations arising in its insurance business, which may include large and unpredictable claims (including catastrophe claims), funding of capital