Net premiums earned by line of business, 2015 (Total USD 3 379 million)
Swiss Re Corporate Solutions Ltd 42 Annual Report 42 Income statement 47 Balance sheet 48 Notes 50 Proposal for allocation of disposable profit 60 Report of the statutory auditor 61
General Information 62 Cautionary note on forward-looking statements 62 Note on risk factors 64
Net investment income 6 89 127 Net realised investment gains 6 158 141 Other revenues 9
Expenses Claims and claim adjustment expenses 3 –2 054 –1 955 Acquisition costs 3 –463 –459 Other expenses –579 –658 Interest expenses –8 –24 Total expenses –3 104 –3 096
Reclassification out of accumulated other comprehensive income For the years ended 31 December
Balance as of 1 January 98 103 201 Change during the period 137 –40 97 Amounts reclassified out of accumulated other comprehensive income –105 –105 Tax –14 –8 –22 Balance as of period end 116 55 171 2015 USD millions
Funds held under reinsurance treaties 1 391 876 Reinsurance balances payable 406 343 Income taxes payable 101 33 Deferred and other non-current tax liabilities 11 425 375 Accrued expenses and other liabilities 541 599 Long-term debt 10 496 496
Additional paid-in capital 677 677 Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax 116 –28 Foreign currency translation, net of tax 55 –13
Balance as of 1 January 0 89 Change during the period 90 –25 Income attributable to non-controlling interests –1 2 Balance as of period end 89 66 1 Dividends to the shareholder were paid in the form of a repayment of legal reserves from capital contributions. 2 During Q3 2014, Swiss Reinsurance Company Ltd transferred the shares of Swiss Re Corporate Solutions Brasil Seguros S.A. to Swiss Re Corporate Solutions Ltd, please refer to Note 1 "Organisation and summary of significant accounting policies".
Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items 70 70 Net realised investment gains/losses –158 –141 Change in: Technical provisions and other reinsurance assets and liabilities, net 80 –906 Funds held by ceding companies and under reinsurance treaties –111 –148 Reinsurance recoverable on unpaid claims and policy benefits 787 1 127 Other assets and liabilities, net –24 –22 Income taxes payable/recoverable 129 –16 Trading positions, net 100 99
Cash flows from financing activities Issuance/repayment of long-term debt 496 Dividends paid to parent –700 –200 Net cash provided/used by financing activities –204 –200
During the third quarter of 2014, Swiss Re Corporate Solutions completed the acquisition of the outstanding common shares of Swiss Re Corporate Solutions Brasil Seguros S.A. (“SRCSB”) from Swiss Reinsurance Company Ltd (“SRZ”). Following the acquisition, SRCSB ceased to be a subsidiary of SRZ, and therefore is no longer part of the Swiss Reinsurance Company Group (the “SRZ Group”). These financial statements were prepared as if SRCSB had been transferred to SRCS as of 1 January 2014.
Principles of consolidation The Group’s financial statements include the consolidated financial statements of SRCS and its subsidiaries. Voting entities which SRCS directly or indirectly controls through holding a majority of the voting rights are consolidated in the Group’s accounts. Companies which the Group does not control, but over which it directly or indirectly exercises significant influence, are accounted for using the equity method or the fair value option and are included in other invested assets.
Foreign currency remeasurement and translation Transactions denominated in foreign currencies are remeasured to the respective subsidiary’s functional currency at average exchange rates. Monetary assets and liabilities are remeasured to the functional currency at closing exchange rates, whereas non-monetary assets and liabilities are remeasured to the functional currency at historical rates. Remeasurement gains and losses on monetary assets and liabilities and trading securities are reported in earnings. Remeasurement gains and losses on available-for-sale securities, investments in consolidated subsidiaries and investments accounted for using the equity method are reported in shareholder’s equity.
For assets or derivative structures at fair value, the Group uses market prices or inputs derived from market prices. A separate internal price verification process, independent of the trading function, provides an additional control over the market prices or market input used to determine the fair values of such assets. Although management considers that appropriate values have been ascribed to such assets, there is always a level of uncertainty and judgement over these valuations. Subsequent valuations could differ significantly from the results of the process described above. The Group may become aware of counterparty valuations, either directly through the exchange of information or indirectly, for example, through collateral demands. Any implied differences are considered in the independent price verification process and may result in adjustments to initially indicated valuations. As of 31 December 2015, the Group had not provided any collateral on financial instruments in excess of its own market value estimates.
In June 2014, the FASB issued ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”, an update to topic 860, “Transfers and Servicing”. ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings rather than as sales with forward repurchase agreements and eliminates previously issued accounting guidance on linked repurchase financing transactions. The ASU includes new disclosure requirements for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. These requirements of ASU 2014-11 were adopted on 1 January 2015 and the adoption did not have an effect on the Group’s financial statements. In addition, for transactions accounted for as secured borrowings, including repurchase agreements and securities lending transactions, the ASU requires entities to provide disclosures that disaggregate the related gross obligation by class of collateral pledged, disclose the remaining contractual maturity of the agreements and to provide information on the potential risks of these arrangements
In August 2014, the FASB issued ASU 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure”, an update to subtopic 310-40, “Receivables — Troubled Debt Restructurings by Creditors”. ASU 2014-14 affects creditors that hold government-guaranteed mortgage loans. The ASU requires that a mortgage loan be derecognised and that a separate other receivable be recognised upon foreclosure if specific conditions are met, including that the guarantee is not separable from the loan before foreclosure. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor. The Group adopted ASU 2014-14 on 1 January 2015. The adoption did not have an effect on the Group’s financial statements.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities“, an update to subtopic 825-10, “Financial Instruments – Overall“. The ASU requires an entity to carry investments in equity securities, including other ownership interests and limited liability companies at fair value through net income, with the exception of equity method investments, investments that result in consolidation or investments for which the entity has elected the practicability exception to fair value measurement. The practicability exception can only be applied by certain entities and only to equity investments without a readily determinable fair value. Investments under the practicability exception will be subject to an indicator-based impairment test. For financial liabilities to which the fair value option has been applied, the ASU also requires an entity to separately present the change in fair value attributable to instrument-specific credit risk in other comprehensive income rather than in net income. Specific exceptions apply to this requirement. In addition, the ASU requires an entity to assess whether a valuation allowance is needed on a deferred tax asset (DTA) related to fixed income securities AFS in combination with the entity‘s other DTA‘s rather than separately from other DTAs. The ASU also introduces changes to disclosure requirements for financial instruments not measured at fair value and introduces new requirements for equity instruments where the practicability exception to fair value measurement is applied. The new requirements are effective for annual and interim periods beginning after 15 December 2017 with early adoption permitted for requirements relating to the presentation of the impact of instrumentspecific credit risk on qualifying financial liabilities in other comprehensive income. The Group is currently assessing the impact of the new requirements.
Casualty The Casualty segment includes liability, motor and non-life accident & health. The Group’s general liability insurance products provide coverage against legal liability exposure of a business including product, professional, directors’ and officers’ (D&O) and environmental liability insurance. Non-life accident and health insurance includes workers compensation and disability coverage.
Net investment income 127 Net realised investment gains/losses 141 Other revenues 9 Interest expenses –24 Income before income tax expenses 560
The Group cedes certain re/insurance contracts to affiliated companies within the Swiss Re Group, but outside the Swiss Re Corporate Solutions Group (please refer to Note 12).
Change in unpaid claims and claim adjustment expenses Gross –165 843 Ceded –593 –1 089
A reconciliation of the opening and closing reserve balances for unpaid claims and claim adjustment expenses for the period is presented as follows: The Group does not discount liabilities arising from prospective property and casualty insurance and reinsurance contracts, including liabilities which are discounted for US statutory reporting purposes. Liabilities arising from property and casualty insurance and reinsurance contracts acquired in a business combination are initially recognised at fair value in accordance with the purchase method of accounting.
Foreign exchange –88 –114 Effect of acquisitions, disposals, new retroactive reinsurance and other items 115 39 Net balance as of 31 December 4 287 4 437
Prior-year development In 2015, claims development on prior years was driven by favourable experience in all lines except accident & health, engineering and credit & surety. The largest favourable experience came from property.
US asbestos and environmental claims exposure The Business Unit‘s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986 as well as out of such business acquired subsequently through reinsurance arrangements to other Swiss Re Group Companies, in particular in the area of US asbestos and environmental liability.
Estimating ultimate asbestos and environmental liabilities is particularly complex for a number of reasons relating in part to the long period between exposure and manifestation of claims, and in part to other factors, which include risks and lack of predictability inherent in complex litigation, changes in projected costs to resolve, and in the projected number of, asbestos and environmental claims, the effect of bankruptcy protection, insolvencies, and changes in the legal, legislative and regulatory environment. As a result, the Group believes that projection of exposures for asbestos and environmental claims is subject to far less predictability relative to non-environmental and non-asbestos exposures. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts and the current state of the law. However, reserves are subject to revision as new information becomes available and as claims develop. Additional liabilities may arise for amounts in excess of reserves, and the Group‘s estimate of claims and claim adjustment expenses may change. Any such additional liabilities or increases in estimates cannot be reasonably estimated in advance but could result in charges that could be material to operating results.
As of 31 December, the DAC were as follows: Retroceded DAC may arise on retrocession of reinsurance portfolios, including reinsurance undertaken as part of a securitisation. The associated potential retrocession recoveries are determined by the nature of the retrocession agreements and by the terms of the securitisation.
Financial Statements I Notes to the Group financial statements 6 Investments
Fixed income securities 106 133 Equity securities 15 22 Short-term investments 5 5 Other current investments 7 12 Cash and cash equivalents 2 1 Net result from deposit-accounted contracts 3 3 Deposits with ceding companies 24 20 Gross investment income 162 196 Investment expenses –29 –31 Interest charged for funds held –44 –38 Net investment income 89 127
Fixed income securities available-for-sale: Gross realised gains 25 31 Gross realised losses –13 –15
Other-than-temporary impairments –4 –3 Net realised investment gains/losses on trading securities 1 1 Net realised/unrealised gains/losses on other investments –5 –1 Net realised/unrealised gains/losses on insurance-related activities 46 33 Foreign exchange gains/losses 18 2 Net realised investment gains/losses 158 141
Mortgage- and asset-backed securities 397 1 –3 395 Fixed income securities available-for-sale 5 945 43 –100 5 888 Equity securities available-for-sale 906 83 –54 935
Assets pledged As of 31 December 2015, investments with a carrying value of USD 1 070 million were on deposit with regulatory agencies in accordance with local requirements, and investments with a carrying value of USD 178 million were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
Financial Statements I Notes to the Group financial statements 7 Fair value disclosures
In certain situations, the Group uses inputs to measure the fair value of asset or liability positions that fall into different levels of the fair value hierarchy. In these situations, the Group will determine the appropriate level based upon the lowest level input that is significant to the determination of the fair value.
Equity securities held by the Group for proprietary investment purposes are mainly classified in levels 1 and 2. Securities classified in level 1 are traded on public stock exchanges for which quoted prices are readily available. Level 2 equities include equity investments fair valued pursuant to the fair value option election and certain hedge fund positions; all valued based on primarily observable inputs.
The category “Other invested assets” includes the Group’s private equity funds investments which are made via ownership of funds. Substantially all of these investments are classified as level 3 due to the lack of observable prices and significant judgement required in valuation. The Group’s holdings in private equity funds are generally valued utilising net asset values (NAV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on redemptions).
The Risk Management function is responsible for independent validation and ongoing review of the Group’s valuation models. The Product Control group within Finance is tasked with reporting of fair values through the vendor- and model-based valuations, the results of which are also subject to the IPV process.
Assets and liabilities measured at fair value on a recurring basis As of 31 December, the fair values of assets and liabilities measured on a recurring basis by level of input were as follows: 2014 USD millions
Equity securities held for proprietary investment purposes 732 732 Short-term investments held for proprietary investment purposes 1 723 625 2 348 Derivative financial instruments 11 11 Other invested assets 21 21 Total assets at fair value 4 011 4 204 45 8 260
Debt securities issued by US government and government agencies 2 206 347 2 553 US Agency securitised products 176 176 Debt securities issued by non-US governments and government agencies 504 504
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliation of the fair value of assets and liabilities measured on a recurring basis using significant unobservable inputs was as follows: 2014 USD millions
Realised/unrealised gains/losses: Included in net income 4 4 29 29 Included in other comprehensive income –5 –5 0
Gains/losses included in net income for the period 36 33 Whereof change in unrealised gains/losses relating to assets and liabilities still held at the reporting date 33 –28
Other invested assets measured at net asset value As of 31 December 2014 and 2015, other assets measured at net asset value were USD 21 million and USD 12 million, respectively. Additionally there were USD 5 million of unfunded commitments as of 31 December 2014 and 2015.
Assets and liabilities not measured at fair value but for which the fair value is disclosed As of 31 December 2014 and 2015, the subordinated financial debt issued by the Group was valued at USD 493 million and USD 491 million, respectively. The debt position is fair valued based on executable broker quotes and is classified as a level 2 measurement.
Weather contracts –35 –82 Proprietary Option Model Risk Margin 8%–11% (10%) Correlation –90%–80% (21%)
Industry loss warrants –20 –13 Credit Default Model Market implied probability of Nat Cat event 1%–17% (5%)
Financial Statements I Notes to the Group financial statements 8 Derivative financial instruments
Fair values and notional amounts of derivative financial instruments As of 31 December, the fair values and notional amounts of the derivatives outstanding were as follows: The notional amounts of derivative financial instruments give an indication of the Group’s volume of derivative activity and are presented without set off. The fair value assets are included in “Other invested assets” and the fair value liabilities are included in “Accrued expenses and other liabilities”.
Gains and losses of derivative financial instruments The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of derivative financial instruments are recorded in “Net realised investment gains/losses˝ in the income statement. For the years ended 31 December, the gains and losses of derivative financial instruments were as follows: Maximum potential loss In consideration of the rights of set-off and the qualifying master netting arrangements with various counterparties, the maximum potential loss as of 31 December 2014 and 2015 was approximately USD 11 million and USD 8 million, respectively. The maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties.
Derivative financial instruments Foreign exchange contracts –6 –2 ECM/Weather contracts/ILW 47 35 Total gain/loss recognised in income 41 33 2014 USD millions
Financial Statements I Notes to the Group financial statements 9 Acquisitions
Acquisition of IHC Risk Solutions Corporation On 31 March 2016, Swiss Re Corporate Solutions acquired 100% of the shares of IHC Risk Solutions, LLC, a leading US employer stop loss underwriter. The cost of the acquisition was USD 153 million. The transaction includes IHC Risk Solutions‘ operations, its team of experts and business portfolio, including in-force, new and renewal business by IHC Risk Solutions. This acquisition broadens the Group’s current employer stop loss capabilities in the small- and middle-market self-funded healthcare benefits segment. Apart from immaterial transaction costs, the Group financial statements and related notes in this report are not impacted.
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. The components of the income tax charge were: Tax rate reconciliation The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement: The Group reported a tax charge of USD 149 million on a pre-tax income of USD 560 million for 2015, compared to a charge of USD 195 million on a pre-tax income of USD 587 million for 2014. This translates into an effective tax rate in the current and prior year reporting periods of 26.6% and 33.2%, respectively. The lower tax rate in the current year is mainly driven by lower tax charges from foreign exchange movements
Income tax at the Swiss statutory tax rate of 20.5% 121 115 Increase (decrease) in the income tax charge resulting from: Foreign income taxed at different rates 42 47 Impact of foreign exchange movement 23 –1 Tax exempt income/dividends received deduction –12 –14 Other income based taxes 10 9 Other, net 11 –7
Net operating tax losses of USD 11 million were utilised during the period ended 31 December 2015.
Liability for unrecognised tax benefits including interest and penalties –10 –9 Total deferred and other non-current tax liabilities –425 –375
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. The balance of gross unrecognised tax benefits as of 31 December 2015 presented in the table above excludes accrued interest and penalties (USD 1 million).
Denmark 2010–2015 France 2013–2015 Germany 2010–2015 Italy 2011–2015 Japan 2009–2015 Luxembourg 2011–2015 Netherlands 2011–2015 Singapore 2013–2015 Switzerland 2013–2015 United Kingdom 2012–2015 United States 2009–2015
The Group assumes and cedes certain re/insurance contracts from/to affiliated companies within the Swiss Re Group, but outside the Group. The Group also conducts various investing activities, including derivatives, with affiliated companies in the Swiss Re Group. In addition, the Group enters into various arrangements with affiliated companies in the Swiss Re Group for the provision of services. These activities result in the following related party transactions on the income statement and balance sheet: USD millions 2014 2015
Premiums earned 157 –61 Net investment income – non-participating –50 –46 Net realised investment income – non-participating 34 16 Total revenues 141 –91
Other invested assets 1 Premiums and other receivables 220 204 Reinsurance recoverable on unpaid claims 5 835 4 730 Funds held by ceding companies 1 Deferred acquisition costs –3 –3 Other assets 223 225
Unpaid claims and claim adjustment expenses 488 391 Unearned premiums 203 161 Funds held under reinsurance treaties 1 337 816 Reinsurance balances payable 115 94 Accrued expenses and other liabilities 120 102
Reinsurance and sub-holding company Swiss Re Corporate Solutions Ltd (the Company), domiciled in Zurich, Switzerland, performs a dual role within the Swiss Re Group as both a reinsurance company and a sub-holding company for the Corporate Solutions Business Unit. The Company is a wholly-owned subsidiary of Swiss Re Ltd, the ultimate parent company domiciled in Zurich, Switzerland. In 2015, the Company directly employed worldwide staff at an average of 8 full-time equivalents. Since the inception of the Company, Corporate Solutions staff in Switzerland have been employed by Swiss Reinsurance Company Ltd, and their costs recharged to the Company. Effective 1 January 2016, the staff will be directly employed by the Company.
Assets Total assets increased by 8% to CHF 7 200 million at 31 December 2015, compared to 31 December 2014. Excluding the effects of foreign exchange movements, total assets increased by 9%.
Liabilities Total liabilities increased by 11% to CHF 5 432 million at 31 December 2015, compared to 31 December 2014. Excluding the effects of foreign exchange movements, total liabilities increased by 12%.
Provision for currency fluctuation decreased by CHF 33 million due to recognised foreign exchange gains.
Shareholder’s equity Shareholder’s equity decreased from CHF 1 784 million at 31 December 2014 to CHF 1 768 million at 31 December 2015.
The decrease resulted from the ordinary cash dividend of CHF 194 million, partly offset by net income for 2015 of CHF 178 million.
Structural changes Transfer of employees from Swiss Reinsurance Company Ltd Together with related assets and liabilities, Corporate Solutions employees in Switzerland employed by the Swiss Reinsurance Company Ltd were transferred to Swiss Re Corporate Solutions Ltd. This change of employing legal entities was effective as of 1 January 2016 and will not affect or alter the way Swiss Re conducts business or the way in which it operates with its clients.
Addition of new entities The establishment of new entities is planned for 2016 in Hong Kong (branch of Swiss Re International SE) and in Mexico (separate legal entities).
Corporate Solutions has announced the acquisition of IHC Risk Solutions, LLC and the direct employer stop loss (ESL) business of Independence Holding Company in 2016 through Westport Insurance Corporation. This transaction has been approved by the US regulator.
Macroeconomic environment The global economy is still expected to improve modestly in 2016 and 2017, with slightly higher growth in many regions, including the US, the UK and the Eurozone. Downside risks have increased along with market volatility. The main challenges are the tightening of monetary policy in the US, China’s transition from an investment- to a consumption-driven economy, low commodity prices and a plethora of political issues such as Middle East turmoil and associated refugee crisis, Ukraine and a possible Brexit. The biggest risks are a hard landing in China, followed by an emerging market crisis and a stagnation in Europe as a consequence of political paralysis.
Outlook The 2016 renewals are expected to be conducted under soft market conditions, characterised by abundant capacity and continued price erosion in most lines of business.
The Group Executive Committee (Group EC) is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors risk capacity limits, oversees the Economic Value Management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group EC has delegated various risk management responsibilities to the Group Chief Risk Officer (CRO) as well as to the Business Units.
The Group CRO, who is a member of the Group EC, reports directly to the Group CEO, and advises the Group EC, the Chairman or the respective Group Board Committees, in particular the Finance and Risk Committee, on significant matters arising in their area of responsibility. The Group CRO leads the Group Risk Management function, which is responsible for risk oversight and control across Swiss Re. The Group Risk Management function is comprised of central risk management units providing shared services, along with dedicated teams for the Reinsurance, Corporate Solutions, and Admin Re® (Life Capital since 1 January 2016) Business Units.
The three Business Unit risk teams are led by dedicated Chief Risk Officers, who report directly to the Group CRO and have a secondary reporting line to their respective Business Unit CEO. The Business Unit CROs are responsible for risk oversight in their respective Business Unit, as well as for establishing proper risk governance to ensure efficient risk identification, assessment and control. They are supported by functional, regional and legal entity CROs, who are responsible for overseeing risk management issues that arise in their respective area.
The central risk management units also oversee Group liquidity and capital adequacy and maintain the Group frameworks for controlling these risks throughout Swiss Re.
Change in unearned premiums gross –343 –91 Change in unearned premiums retroceded 3 –1 Change in unearned premiums net –340 –92
Other reinsurance revenues 3 3 Allocated investment return 33 36 Total revenues from reinsurance business 2 500 2 520
Investments 2 Investment income 198 112 Investment expenses –24 –56 Allocated investment return –33 –36 Investment result 141 20
Shares in investment funds 40 1 106 Short-term investments 1 269 944
Non-technical provisions Tax provisions 30 27 Provision for currency fluctuation 72 39 Other provisions 4 –4 Total non-technical provisions 106 62
Liabilities from derivative financial instruments – 1 Reinsurance balances payable 3 21 34 Other liabilities 3 6 Accrued expenses 8 11 Subordinated liabilities 497 500
As a reinsurance company and based on Art. 111b of the Ordinance on the supervision of private insurance companies (AVO), the Company is also required to follow the Insurance Supervisory Ordinance-FINMA (AVO-FINMA) that took effect on 15 December 2015. The AVO-FINMA contains specific guidance for presentation of the balance sheet, income statement and notes of insurance companies and override the general guidance of the Swiss Code of Obligations.
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 in foreign currencies are converted into Swiss francs at average exchange rates for the reporting year.
Subsequent recoveries of previously recorded downward value adjustments may be recognised up to the lower of cost or market value at the balance sheet date. The valuation rules prescribed by the Swiss Financial Market Supervisory Authority FINMA are observed.
The group valuation method is applied for the investments in subsidiaries and affiliated companies, which are economically linked to each other or to the Company.
Premiums and other receivables from reinsurance Premiums and other receivables from reinsurance are carried at nominal value after deduction of known credit risks if applicable. The position mainly consists of receivables from insurance companies and brokers.
Other assets Other assets include deferred expenses on retroactive reinsurance policies, which are amortised through earnings over the expected claims-paying period, as well as rights in connection with securities lending collateral and reverse repurchase transactions, which are carried at nominal value.
Premiums written relating to future periods are stated as unearned premiums and are normally calculated by statistical methods. The accrual of commissions is determined proportionally and is reported under “Deferred acquisition costs”.
Equalisation provision is established to achieve a protection of the balance sheet and to break peaks of incurred claims in individual financial years with an exceptionally high claims burden by releasing appropriate amounts from the provision.
Deposit arrangements Contracts which do not meet risk transfer requirements, defined as transferring a reasonable probability of a significant loss to the reinsurer, are accounted as deposit arrangements. Deposit amounts are adjusted for payments received and made, as well as for amortisation or accretion of interest.
Shares in investment funds 5 9 – 14 Short-term investments 2 – – 2
Reinsurance balances payable –12 –9 -21 –18 –16 -34 1 Reported under Reinsurance recoverable on technical provisions retroceded on page 48.
Allocation to voluntary profit reserves 210 –210 – Allocation to retained earnings 78 –78 – Dividend for the financial year 2014 –194 –194 Net income for the year 178 178
Fair value of securities transferred to third parties – – Fair value of securities transferred to affiliated companies 999 866
Funds held by ceding companies 486 449 Premiums and other receivables from reinsurance 1 089 1 019 Other receivables 4 12 Reinsurance balances payable 2 13 Other liabilities 3 5
Financial Statements I Swiss Re Corporate Solutions Ltd 13 Investments in subsidiaries
As of 31 December 2015 and 2014, Swiss Re Corporate Solutions Ltd held the following direct and indirect investments in subsidiaries and affiliated companies: As of 31 December 2015 Country City
Swiss Re Corporate Solutions Brasil Seguros S.A. Brazil São Paulo 100% 100% Compania Aseguradora de Fianzas S.A. Confianza Colombia Bogotá 51% 51%
Total administrative expenses for the 2015 financial year, including charges by affiliates, amounted to CHF 228 million (2014: CHF 210 million).
Legal reserves from capital contributions after proposed allocation to voluntary profit reserves 1 342 1 312 1 The translation into CHF at spot rate on the settlement date may result in a lower reclassification of legal reserves from capital contributions to voluntary profit reserves by a respective amount on the settlement date.
Proposed cash dividend (maximal amount in CHF of the proposed dividend in USD translated into CHF) -1942 –2801
2 The 2014 figures were recalculated based on the final ordinary cash dividend converted into CHF at spot rate on the settlement date.
Retained earnings brought forward 2 80 Net income for the financial year 288 178 Disposable profit 290 258 Allocation to voluntary profit reserves –210 –250 Retained earnings after allocation 80 8
Report of the statutory auditor on the Financial Statements As statutory auditor, we have audited the accompanying financial statements of Swiss Re Corporate Solutions Ltd (the “Company”), which comprise the income statement, balance sheet and notes (pages 47 to 59), for the year ended 31 December 2015.
Despite signs of moderate increase in global growth forecasts and positive macroeconomic trends in the United States, growth forecasts among the principal global economies remain uneven and uncertain, and that uncertainty has been compounded by significant volatility in equity, currency and commodities markets. Slower growth rates in China, together with the actions taken on its currency, and drastic reductions in the price of oil, together with volatility in foreign currency and investment markets caused by interest rate action in the United States; continued concerns over the implications of austerity-driven economic policies in Europe and the ability of the European Union to address significant ongoing structural challenges; concerns over a possible exit of the United Kingdom from the European Union; deceleration in GDP growth and other negative trends in emerging markets; and geopolitical instability, reflecting the political and military situations in the Middle East and North Africa, the rise of the Islamic State, concerns over further terrorist attacks across the globe and the political, economic and social crises caused by massive waves of migration into and through Europe, have contributed to downward pressure on the capital markets and in turn on market capitalisation of many listed companies, call into question the likelihood of continued recovery of the global economies and are beginning to raise the spectre of another global recession.
With fewer options available to policymakers and concerns generally over the absence of realistic confidence-building measures, and with heightened risk that volatility or depressed conditions in one sector, one market, one country or one region could have far broader implications, volatility can be expected to continue. Further adverse developments or the continuation of adverse trends that in turn have a negative impact on financial markets and economic conditions could limit our ability to access the capital markets and bank funding markets, could adversely affect the ability of counterparties to meet their obligations to us and could adversely affect the confidence of the ultimate buyers of insurance. Any such developments and trends could also have an adverse effect on the Group’s investment results, which in the current low interest rate environment and soft insurance cycle could have a material adverse effect on the Group’s overall results, make it difficult to determine the value of certain assets in the Group’s portfolio and/or make it difficult to acquire suitable investments to meet the Group’s risk and return criteria.
Market risk Volatility and disruption in the global financial markets can expose the Group to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices and foreign currency exchange rates, which may adversely impact the Group’s financial condition, results of operations, liquidity and capital position. The Group’s exposure to interest rate risk is primarily related to the market price and cash flow variability associated with changes in interest rates. In general, a low interest rate environment, such as the one experienced in recent years, poses significant challenges to the insurance and reinsurance industries, with earnings capacity under stress unless lower investment returns from fixed income assets can be offset by lower combined ratios or higher returns from other asset classes. Economic weakness, fiscal tightening and monetary policies are keeping government yields low, which impacts investment yields and affects the profitability of life savings products with interest rate guarantees. Exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. When credit spreads widen, the net unrealised loss position of the Group’s investment portfolio can increase, as could other-than-temporary impairments.
With respect to equity prices, the Group is exposed to changes in the level and volatility of equity prices, as they affect the value of equity securities themselves as well as the value of securities or instruments that derive their value from a particular equity security, a basket of equity securities or a stock index. The Group is also subject to equity price risk to the extent that the values of life-related benefits under certain products and life contracts, most notably variable annuity business, are tied to financial market values; to the extent market values fall, the financial exposure on guarantees related to these contracts would increase to the extent this exposure is not hedged. 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.
The Group is also subject to credit and other risks in its credit business, including reliance on banks that underwrite and monitor facilities in with the Group participates and potential default by borrowers.
The Group manages liquidity and funding risks by focusing on the liquidity stress that is likely to result from extreme capital markets scenarios or from extreme loss events or combinations of the two. Generally, the ability to meet liquidity needs could be adversely impacted by factors that the Group cannot control, such as market dislocations or interruptions, adverse economic conditions, severe disruption in the financial and worldwide credit markets and the related increased constraints on the availability of credit; changes in interest rates, foreign exchange rates and credit spreads, or by perceptions among market participants of the extent of the Group’s liquidity needs.
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.
Risks related to the Swiss Re structure Corporate Solutions is a wholly owned subsidiary of Swiss Re Ltd (“SRL”), and the Group represents one of the four operating segments of the Swiss Re Group. While a significant portion of the Corporate Solutions business was transferred to the Group as part of the formation of the Group as a separate business unit, for regulatory reasons certain of our operations are conducted by legal entities that continue to be owned by other members of the Swiss Re Group. In addition, a substantial portion of the Group’s historical loss reserves remain with other members of the Swiss Re Group.
developments applicable more broadly, could have a material adverse effect on the Group’s ability to conduct its business, even if such factors do not directly impact the commercial insurance business.
While further changes to the Swiss Re Group structure may not have a financial statement impact on a Swiss Re Group consolidated basis, they would impact the Group to the extent that operations are transferred into or from the Group, or as a result of intra-group transactions (from the perspective of the Swiss Re Group) to the extent the Group is a counterparty to any such transactions. The process of optimising the structure as between the Swiss Re Group and its operating segments will continue to evolve over time.