Business Report From helping in the aftermath of disaster to preventing weather-related losses: here are some highlights of the year.
Research and development 38 Our people and culture 40 Board of Directors 42 Group Executive Committee 43 Financial highlights 44 Cautionary note 45 Contacts 47
Corporate Solutions Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customised products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind.
Net premiums earned and fee income by business segments (Total USD 33.7 billion)
Dear shareholders, 2017 was a turbulent year. It will go down in history as a year in which insurers – especially reinsurers – faced many claims from major natural catastrophes. Insurers saw their accounts hit by no fewer than three hurricanes in the North Atlantic, two earthquakes in Mexico, two large forest fires in California and storms in Australia. But after all, this is our business and the reason why we’re here. That’s why we provide a detailed overview of the 2017 natural catastrophes and their impact in our Annual Report. Incidentally, history shows that loss concentrations of this kind occur at a practically biblical rhythm of every five to seven years.
While the US is demonstrating economic strength that we haven’t seen for years, the country is still bitterly divided on key issues – which will presumably worsen. I believe that the US is in the midst of a more substantial transformation than is suggested by the media’s focus on President Trump and his Twitter activity. At the same time, the Middle East continues to be the scene of great political upheaval, and unfortunately, no rays of hope are discernible on the horizon at present.
Meanwhile, this all comes down to the main aspect of our strategy: the allocation of capital and resources to emerging business models as well as the leveraging of newly established intermediaries to gain access to risk pools and end customers to which our traditional primary insurance partners have little access. Of course, we also aim to find new ways of assessing and evaluating risks – thanks to new analytical methodologies in a highly interconnected world of infinite data volumes.
Geopolitical risk In line with recent geopolitical trends, international commitment to cooperation in terms of trade, security and free movement of people is deteriorating. After a prolonged period of cooperation following the financial crisis, regulators today also seem to have less of an appetite for globally-aligned policy reforms. The chances of global re/insurance regulatory standards being agreed and implemented have diminished and a more territorial approach to supervision seems to be on the rise. The resulting fragmentation limits diversification possibilities and regulatory predictability, and it increases operational costs by requiring more local regulatory considerations. Additionally, more fragmented regulatory approaches will be less effective in promoting financial stability. Such developments may eventually lead to trade barriers and market access issues around the globe. They could also undermine re/insurers’ ability to support economic activity and close the protection gap.
As already communicated, there is also a change to our Group Executive Committee: John R. Dacey will become the new Group Chief Financial Officer, succeeding David Cole, with effect from 1 April 2018. John R. Dacey joined Swiss Re’s Group Executive Committee as Group Chief Strategy Officer more than five years ago, and has successfully led several strategic initiatives. His career in the re/insurance industry spans over 20 years, during which time he has held a range of management positions. After more than seven years at Swiss Re, David will step down as Group CFO on 31 March 2018 to pursue a non-executive career. He will, however, remain a member of the board of directors of several Swiss Re subsidiaries. We would like to thank David Cole for his management expertise and outstanding contribution to Swiss Re.
Dear shareholders, 2017 was a demanding year for our industry – and for Swiss Re. I’m sure you remember the news headlines about Cyclone Debbie in Australia, the hurricanes in the US and Caribbean, the earthquakes in Mexico or the wildfires in California. Above all else, disasters like these are human tragedies. I was troubled and deeply moved by the devastation to families and whole communities.
Despite the estimated large insurance claims of 2017, we reported a full year net income of USD 331 million. Our decisions in recent years to keep excess capital on our balance sheet and to be disciplined in our underwriting mean that – even after the losses – our capital position is very strong and our financial flexibility remains high. Our commitment to creating long-term value for you, our shareholders, as well as for our clients remains unchanged.
Unfortunately, last year’s natural disasters also highlighted the fact that a lot of people do not have insurance. That can be due to a variety of reasons, such as lack of access or awareness. In fact, the number of people around the world who are not protected has been increasing. This is due to population growth and more people living in areas that are prone to natural disasters – Florida is one example.
Swiss Re remains a leading player in the industry, supporting the development of robust regulatory and benchmarking frameworks with clear definitions, standards and methodologies that will also enable the creation of suitable investment products needed to secure widespread adoption of ESG criteria.
Growing impact We continually explore options to further integrate ESG criteria into our investment decisions. With this move, we hope to encourage the development of business models that help make economies more resilient and improve longer-term financial market stability. The impact of applying ESG criteria into the entire USD 75 trillion institutional asset base could have a transformational effect on our world.
Our strategy and near-term priorities set us up well to continue partnering with our clients and applying our knowledge to develop solutions that directly tackle the protection gap. Even after 19 years with Swiss Re, I’m still impressed by my colleagues’ dedication to doing this every day – for that, I sincerely thank them. I also thank you, our shareholders, for your trust in us, the employees of your company, Swiss Re.
Improving global growth The cyclical upswing in the major economies continued at an accelerated pace.
Low bond yields While the US Fed increased rates three times in 2017, 10-year government bond yields remained low.
USD 133bn (Estimated insured natural catastrophe losses, 2017, source: Swiss Re Institute)
Elevated policy uncertainty Uncertainty around global economic policies decreased during the course of 2017, but remained elevated.
InsurTech gaining traction The number of investments in InsurTech start-ups continued its rise in 2017.
Primary non-life Premiums have risen moderately in almost all countries/regions in 2017 due to stronger economic growth. Global non-life premiums are up an estimated 3% in real terms, after a 2.3% rise in 2016. Underwriting conditions have remained soft, particularly in commercial insurance.
Reinsurance non-life Global premiums in non-life reinsurance are estimated to have grown by 3% in 2017 in real terms, based on rapidly increasing cessions from emerging markets. After five quiet years with low natural catastrophe losses, the global non-life reinsurance industry is facing heavy losses from the hurricane season in the US and the Caribbean in 2017. The combined ratio for 2017 is estimated to be around 110%, with most of the increase due to the hurricane losses, and also a number of other events including Cyclone Debbie in Australia, earthquakes in Mexico, and wildfires in California and Southern Europe.
Reinsurance life & health The life reinsurance industry registered a 4% premium increase in 2017. Underlying reinsurance premium growth in the traditional reinsurance area, such as mortality and morbidity risk, has remained relatively subdued this year. Premiums are estimated to have grown by 1% in real terms in 2017. In mature markets, slight contractions in the US and UK were set off by positive developments in Canada, Japan, Australia and Continental Europe. In the emerging markets, premiums grew by 11%, driven largely by China, with other emerging markets seeing more modest growth.
Well positioned Our capital strength, deep client relationships and knowledge-led approach position Swiss Re well to face industry challenges and seize opportunities.
Growth Growth through systematic capital allocation will help us to deliver sustainable
company that invests in risk pools. We apply our knowledge to support
Corporate Solutions Corporate Solutions represents a successful platform to access the large pool of commercial risks. It will continue to focus on growth and is expected to benefit from pricing improve ments following the 2017 natural catastrophe events.
Growth In 2017 we witnessed a back-to-back series of natural catastrophes that have had a significant short-term financial impact. The ability to face these challenges and continue to focus on growth shows the success of our strategy as we remain committed to disciplined underwriting and long-term success.
Risk knowledge Swiss Re is a risk knowledge company. At the heart of our differentiation is the Swiss Re Institute. The Swiss Re Institute leverages and steers our research and development activities, building on our role as a knowledge partner for our clients.
“ I saw destruction and resilience stand side by side in the aftermath of Hurricane Harvey. For me, resilience means being well prepared for the next crisis.” Karsten Rimestad, Property Treaty Underwriting, Swiss Re 22Wind, water and recovery
“ Resilience means helping communities everywhere face even the smallest, yet menacing, risk.”
“ Seeing the difference the programme makes in boosting the resilience of individuals recovering from cancer has really made me proud to work at Swiss Re.”
Kelly Du Preez, Claims Market Head UK & Ireland, Swiss Re
Wind, water and recovery In 2017, three catastrophic hurricanes devastated parts of the United States and the Caribbean, claiming hundreds of lives and showing how ill-prepared we still are for such events. At Swiss Re, where risk assessment and management are our daily business, we responded to the call, helping those communities stricken by disaster get back on their feet.
hurricane-related claims have been received to date. We have made millions of dollars in advance payments, helping our insureds to begin to get back to business and their lives.
“ At Swiss Re, we are using our expertise to help build a robust private flood insurance market that, together with the US national flood program, will help remove the burden that future Harveys will inevitably bring.”
Preparing for the future Traditionally, hurricane risk assessment has primarily focused on potential damage due to ferocious winds. However, recent events have again demonstrated the need to assess all hazards brought about by hurricanes, in particular heavy precipitation and subsequent water damage.
This, according to our industry leading in-house flood models, translates into a USD 10 billion annual protection gap, an enormous number for a peril that is today more insurable and understood than ever. >
Swiss Re surveyed damaged areas in Rockport, Texas, after Harvey. The newer house on the left shows the need to build better to quickly bounce back from disasters.
CAT 3 Devastating damage will occur: well-built framed homes may incur major damage or removal of roof decking and gable ends.
CAT 5 A high percentage of framed homes will be destroyed, with total roof failure and wall collapse. Fallen trees and power poles will isolate residential areas. Power outages will last for weeks to possibly months. Most of the area will be uninhabitable for weeks or months (Irma, Maria).
Source: www.nhc.noaa.gov > Still, the industry has made significant progress with tackling flood risk. Insurers’ confidence in pricing it means that a large portion of the burden faced by homeowners and local, state, and federal governments can be shifted to the private insurance market. This in turn could lead to more coverage amongst consumers and bring about stronger, more resilient communities. For more than ten years, Swiss Re has been using its proprietary, fully probabilistic US flood and storm surge model, which combines detailed data on hazard, vulnerability, value distribution and insurance conditions, to understand and rate flood risk. We recently started to make this knowledge available to clients and support the private insurance market in the US.
Insight and investment Our understanding of risk and how to price it is one of our differentiating factors. To help clients design innovative products we must not forget risks that have traditionally received little attention by the industry. That is why we continue to invest in broadening our risk knowledge, offering our findings to clients, paving the way for effective risk management and helping close protection gaps.
Tackling all kinds of risk Increasing resilience begins with a deeper understanding of the great variety of perils that may impact lives and economies around the world. We aim to expand the definition of risk, by assessing and measuring all kinds of threats, both globally and regionally.
The destructive power of volcanic ash Volcanic eruptions are rare and remain a largely unmodelled peril for the insurance industry. With almost one billion people living within 150 kilometres of volcanoes globally, volcanic ash fall is a serious threat on global economies and infrastructure. We recently helped one of our clients in Japan to place an insurance-like product to cover losses from volcanic activity for the hospitality business, including having fewer tourists.
Global storm surge zones When tropical cyclones hit flat coastal areas, storm surges – abnormal rises of water generated by a storm – can cause widespread destruction.
What do we know ̤ 230 million people – roughly 3% of the world’s population – are exposed to storm surge risk.
̤ Our storm surge hazard zones enable our clients to expand their insurance offerings on coastal areas, by significantly increasing risk assessment certainty.
Population at risk in millions 7–12m >–1m 1–3m 4–6m 50 years 100 years 250 years 500 years
Facing headwinds During May to November, the risk of typhoons is significant in Hong Kong. The Hong Kong Observatory (HKO), a government department responsible for monitoring and forecasting weather, has set up a sophisticated typhoon warning signal system. When it communicates a higher warning signal, the majority of businesses are forced to shut down, often resulting in economic loss.
Because the insurance policy is parametric, protection is received based on the warning issued by the Hong Kong Observatory (HKO) which acts as the policy trigger. This product can also provide flexible and customisable features to meet specific business needs.
Eye of the storm Typhoon risk is significant: from 1980–2016, 51 recorded signal 8+ typhoons hit Hong Kong.
The path to recovery Cancer affects a third of the global population. Survival rates have improved dramatically, but after a successful fight against cancer, returning to work can be difficult. Swiss Re has partnered with Working Towards Wellbeing in the United Kingdom to help recovering patients resume their normal lives.
400+ Over 400 claimants have participated in the programme following treatment for cancer.
“ The advice that came was fantastic because it addressed things I hadn’t thought about, including a phased return to work.” Ade Dietz
Ade’s journey The initial diagnosis of breast cancer in 2015 was a shock to Ade Dietz, a resident of South Shields, Northern England. Initial pain and symptoms seemed as innocuous as a pulled muscle after a gym session, but it turned out to be a cancerous tumour. For treatment, Ade experienced multiple surgeries, and the chemotherapy itself was both unpleasant and exhausting due to its significant side effects.
Swiss Re partnered with the organisation Working Towards Wellbeing to address these obstacles and support cancer survivors get back to work and back to their routines. The Cancer Work Support Service can provide physical help such as physiotherapy and an exercise programme, and offers significant emotional support services, through regular coaching and advice and therapy by licensed professionals. The programme includes more than ten Swiss Re clients across the market, reaching more than 400 participants.
Early intervention Early therapeutic treatment for those fighting and surviving cancer can lead to greater health and faster recovery, as well as improve workforce management and productivity. Insurers benefit from increased return on investment when survivors adjust more easily to their normal routines.
As Swiss Re’s Group CEO Christian Mumenthaler put it when the company announced the creation of the Institute in December 2016, research and development, and the building of a strong, macro knowledge base focused on longer-term trends within the company are critical to Swiss Re’s business. Knowledge also equips the company with a competitive advantage. The Swiss Re Institute engages with Swiss Re’s stakeholders by sharing insights and publishing a wide range of research from both internal and external partners. The Institute, which is home to the Centre for Global Dialogue, also runs panels and symposia featuring relevant and prominent external and internal speakers to engage in discussion and address key questions critical to closing the insurance protection gap and staying abreast of new trends in insurance markets.
Swiss Re Institute’s research The Institute’s research, which includes Swiss Re’s sigma publications, covers important and current topics ranging from emerging risk pools to risk preferences in high-growth markets, and allows the company to focus on bigger questions and take a longer, strategic view. Swiss Re Institute’s researchers currently focus on following and engaging with crucial sector themes like digital transformation – for example, how will InsurTech influence traditional companies and, in particular, our clients? How can insurers best seize the opportunity and collaborate with the new tech players, rather than letting them disrupt their business? How will artificial intelligence affect society at large and, in particular, the financial sector?
The Institute also tackles ongoing trends in the company’s core business lines, in both life and health and property and casualty. This includes topics such as the ongoing growth of diabetes in China, the rising risk of natural catastrophes in regions currently garnering less focus, as well as the future of food safety as demand for imports from emerging economies grow and the food chain becomes increasingly global.
All this we will do through coordination with linked research lines within Swiss Re and with our extensive external academic and stakeholder network.
This is the Swiss Re Institute, in its own language – figures and statistics: Publications In 2017, the Swiss Re Institute published 54 expertise, sigma, and risk research publications, on topics such as InsurTech and critical illness in India.
Presentations The Swiss Re Institute gave more than 200 external and client presentations throughout the many different regions in which Swiss Re operates, including at Monte Carlo and at the Korea Business Leaders Forum.
Insight In 2017, the Swiss Re Institute collected data from 61 insurance markets and 19 leading insurance companies.
Client executive programmes In 2017, the Swiss Re Institute organised 18 client executive programmes with our client marketing teams around the world, including in Zurich and Guangdong.
It’s not about face time A few years ago, we introduced Own The Way You Work (OTWYW) as a comprehensive programme to promote agile working. In alignment with the needs of clients and colleagues, our people appreciate being largely free to organise their day.
A global presence demands agility We’ve enriched our vision for the way we work at Swiss Re with cutting-edge technology and flexible workplace solutions. These shape an ambitious and creative company culture, where everyone performs at their best.
By design All our offices feel uniquely Swiss Re and are designed to enable everyone to work effectively. Sometimes, we work from home, as agreed with our line manager and teams.
With trust and flexibility, with the right technology and workplaces, we’re enabled to be productive and effective to achieve better outcomes.
Full lives, flexible schedules At Swiss Re we have diverse needs and professional responsibilities. OTWYW provides us with the leeway to manage our day and focus on output and the value we create.
“ Own The Way You Work is an integral part of the Swiss Re culture. It’s based on a mutual commitment between the company and the individual, between the team and each team member, between the line manager and the employee.” Thomas Wellauer, Group Chief Operating Officer
Changes in 2017 At the Annual General Meeting on 21 April 2017, Jay Ralph, Joerg Reinhardt and Jacques de Vaucleroy were elected as new non-executive and independent members of the Board of Directors for a one-year term of office. With these changes, the Board of Directors aims to safeguard the stability of its composition while also renewing the Board in a sensible way. At the same time, the shareholders re-elected Walter B. Kielholz (Chairman), Raymond K.F. Ch’ien, Renato Fassbind, Mary Francis, Rajna Gibson Brandon, C. Robert Henrikson, Trevor Manuel, Philip K. Ryan, Sir Paul Tucker and Susan L. Wagner for a one-year term of office as members of the Board of Directors. Carlos E. Represas did not stand for re-election.
Changes in 2017/2018 Edouard Schmid was appointed Group Chief Underwriting Officer and a member of the Group EC as of 1 July 2017, succeeding Matthias Weber who decided to step down as Group Chief Underwriting Officer. John R. Dacey, Group Chief Strategy Officer, will become Group Chief Financial Officer as of 1 April 2018, succeeding David Cole who has decided to step down as Group Chief Financial Officer. With that change, the two roles of Group Chief Financial Officer and Group Chief Strategy Officer will be merged. As of 1 April 2018, the Group EC will consist of 12 members, whereas it is composed of 13 members up to March 2018.
From left to right 1. Jean-Jacques Henchoz, CEO Reinsurance EMEA 2. J. Eric Smith, CEO Reinsurance Americas 3. Edouard Schmid, Group CUO 4. Jayne Plunkett, CEO Reinsurance Asia 5. Moses Ojeisekhoba, CEO Reinsurance 6. Christian Mumenthaler, Group CEO 7. Patrick Raaflaub, Group CRO 8. David Cole, Group CFO 9. Thomas Wellauer, Group COO 10. John R. Dacey, Group CSO 11. Thierry Léger, CEO Life Capital 12. Guido Fürer, Group CIO 13. Agostino Galvagni, CEO Corporate Solutions
Property & Casualty Reinsurance Net income/loss attributable to common shareholders 2 100 –413 —
̤ changes in legislation and regulation, and the interpretations thereof by regulators and courts, affecting us or the Group’s ceding companies, including as a result of shifts away from multilateral approaches to regulation of global operations; ̤ the outcome of tax audits, the ability to realise tax loss carryforwards, 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 business models; ̤ failure of the Group’s hedging arrangements to be effective; ̤ the lowering or loss of one of the financial strength or other ratings of one or more Group companies, and developments adversely affecting the Group’s ability to achieve improved ratings; ̤ uncertainties in estimating reserves; ̤ policy renewal and lapse rates; ̤ uncertainties in estimating future claims 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; ̤ extraordinary events affecting the Group’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; ̤ legal actions or regulatory investigations or actions, including those in respect of industry requirements or business conduct rules of general applicability; ̤ changes in accounting standards; ̤ significant investments, acquisitions or dispositions, and any delays, unexpected costs, lower-than expected benefits, or other issues experienced in connection with any such transactions; ̤ changing levels of competition, including from new entrants into the market; and
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The 2017 Annual Report is also available in German. The web version of the 2017 Annual Report is available at: reports.swissre.com
Group Net income attributable to common shareholders 3 558 331 –91
Combined ratio in % 101.1 133.4 Net operating margin in % 4.2 –23.5 Return on equity in %1 6.0 –32.2 Life Capital Net income attributable to common shareholders 638 161 –75
Premiums earned and fee income 1 193 1 407 18 Gross cash generation3 721 998 38 Net operating margin in % 27.0 10.9 Return on equity in %1 10.4 2.2 1 Return on equity is calculated by dividing net income/loss attributable to common shareholders by average common shareholders’ equity. 2 Regular staff. 3 Gross cash generation is the change in excess capital available over and above the target capital position, with the target capital being the minimum statutory capital plus the additional capital required by Life Capital’s capital management policy.
In this report We provide a detailed record of our financial and operational performance for 2017.
Report from the Compensation Committee 154 Compensation highlights in 2017 156 Compensation framework 157 Compensation governance 164 Performance outcomes 2017 168 Compensation disclosure and shareholdings 2017 172 Report of the statutory auditor 179
BUSINESS UNIT NET PREMIUMS EARNED AND FEE INCOME (USD BILLIONS) NET INCOME/LOSS (USD MILLIONS) OPERATING PERFORMANCE RETURN ON EQUITY
Geopolitical risks A year ago, I commented on geopolitical risks, at that time in the wake of Brexit and the US elections. Do I feel reassured, one year later? No, I do not. However, the reasons for my concern about the geopolitical situation have shifted somewhat. I now take a slightly more optimistic view of the situation in Europe, with respect to both the political and economic conditions. While the situation in the UK remains very uncertain and the potential consequences of Brexit are still somewhat unclear, I am encouraged by developments in other European countries.
Growth, inflation and interest rates We are obviously pleased that the global economy has entered a growth phase, even more so as our business can only grow when other industries outside of the financial sector are growing too. The inflation so long-awaited by many could, however, be a headache for us if it gets out of control. Let’s remember that we are vulnerable to inflation, especially in the liability business. In the past, it was very difficult to adjust for strong and sudden inflation hikes. Of course, we haven’t reached that point yet. But the phase of highly expansionary monetary policy – whether traditional or nontraditional – is over, and there is little doubt that yield curves will change again – move upwards and get steeper.
“ I personally remain optimistic and confident that Swiss Re will continue its success story – thanks to our resources, financial latitude, global network and our employees’ wealth of knowledge and expertise.“
I am convinced that today’s concept of eco-system insurance will undergo drastic changes. A year ago, I already commented that I consider the distribution and production (intermediation) costs associated with insurance to be far too high given the modern technologies available. This also applies to other financial services, where the current situation has similarly attracted an almost frantic focus. We know, of course, that these far-reaching changes will probably take more time – but we also know that their effects will be felt all the more profoundly and rapidly when they do take hold. I believe that modern technologies will completely disrupt the insurance industry’s value chains and pose great challenges to the entire industry’s structure.
Industry trends An overview of some of the observed trends that are likely to have an impact on the re/insurance industry.
We’ve been determined to tackle this gap in insurance coverage – we call it the protection gap – for many years. In 2015, the global protection gap amounted to around USD 153 billion for natural catastrophe risk. In my opinion, this number is far too big. It represents too many people that will not have the financial support necessary to rebuild their lives when natural catastrophes strike in the future. It also represents a threat to entire economies.
Reducing risks We’re in it for the long-run. And so are our investments. As an early adopter of ESG investment principles, Swiss Re is leading the way towards a more resilient future by increasing its environmental, social and governance accountability. Responsible investment has been for a long time part of our DNA, and our recent switch to ESG benchmarks has helped us further mitigate risk in our investments while still benefiting from the upside potential.
Let me share a tangible example: when hurricanes Harvey, Irma and Maria hit last year, we received more than 200 loss notices from our commercial insurance clients in the days immediately after the hurricanes made landfall. To handle the claims quickly, we reallocated staff across regions and lines of business and we were able to get back to clients within one business day. In one case, we provided a fast, substantial payment to a school that was significantly damaged in one of the most affected areas. With this money, we helped the school start reconstruction quickly, and it’s on track to re-open in time to host the graduation ceremonies for its senior class.
PROTECTION GAPIn contrast to our P&C businesses, our life and health businesses thrived in 2017. For the third year in a row, our Life & Health Reinsurance performance was strong and we increased our net income to USD 1.1 billion – a result we achieved through a strong investment performance and solid underwriting results. In Life Capital, our Business Unit which manages closed and open life and health insurance books, we generated gross cash of USD 998 million in 2017. We also achieved two important milestones in ReAssure, a UK subsidiary of Life Capital, through which we buy books of policies that are no longer sold by a life insurer but need to be actively managed until they close. I’m delighted that MS&AD, a Japanese insurance group that we’ve had a relationship with for 103 years, made a minority investment in ReAssure. This significantly boosts our capacity to finance closed books of business. And, you may have read that in late 2017 we purchased 1.1 million life insurance policies from Legal & General Group PLC, a UK financial service provider. We now protect 3.4 million people through ReAssure. At the same time, we generated significant growth in Life Capital’s individual and group life insurance businesses in 2017.
A successful capital allocator We use a knowledge-based approach to allocate capital to the most attractive risk pools and target an optimal portfolio of assets and liabilities.
Global economy The US economy, after a weak first quarter, returned to robust growth in the third quarter of 2017, despite disruptions caused by hurricanes Harvey and Irma. The Euro area economy outperformed expectations and accelerated significantly compared to 2016. The pick-up in growth was broadly based across Euro area member countries. Nevertheless, the level of real economic output has still not recovered to preglobal -financial-crisis levels in a number of countries, including Greece, Italy and Portugal. Growth in the United Kingdom was weaker than in the Euro area as Brexit-related uncertainty hampered business investment. Elevated inflation in the United Kingdom eroded consumer purchasing power and thus spending. The Japanese economy outperformed expectations in the first half of 2017, driven mainly by a recovery in exports.
Interest rates Some of the major central banks reduced their monetary stimulus measures in 2017. The US Federal Reserve (Fed), which had already increased interest rates in late 2015 and 2016 by 25 basis points each, raised interest rates three more times in 2017. In addition, the Fed stopped reinvesting some of the maturing debt securities as of October 2017, which will lead to a gradual reduction of its balance sheet.
The global economy and financial markets Global growth improved in 2017. Long-term bond yields remained low while equity markets rallied.
Despite initial moves towards less accommodative monetary policies in some advanced markets and stronger growth, long-term government bond yields were broadly unchanged on the year (see interest rates chart). The US 10-year yield ended the year at 2.4%, the UK yield at 1.2% and the Japanese yield at 0%. The yield on the German 10-year government bond was up modestly and ended the year at 0.4%, compared to 0.2% at the end of 2016.
Stock market performance Stronger growth, moderate inflation and continued support from central banks supported stock markets in 2017 (see stock markets chart). The US S&P 500 gained 19%, the Japanese TOPIX 18% and the Swiss Market Index 14%. The Eurostoxx50 and the MSCI UK increased by a more moderate 6% and 7%, respectively.
Currency movements The US dollar weakened versus other major currencies during 2017. The election of Donald Trump in November 2016 had raised expectations of stronger growth, higher inflation and higher interest rates, which caused the US dollar to appreciate in late 2016. During the course of 2017, expectations of increased US public spending and tax cuts were scaled back, causing the US dollar to weaken again. The British pound was up 10% versus the US dollar in 2017, and the euro gained 14%, helped
– United States – United Kingdom – Germany – Japan – Switzerland
ECONOMIC INDICATORS 2016–2017 by stronger than expected growth in the Euro area. The Japanese yen and the Swiss franc were up by a more moderate 4% and 5% versus the US dollar, respectively. The latter two currencies are typically perceived as “safe havens” and became relatively less attractive as economic confidence improved.
Economic risks affecting re/insurers There are both upside opportunities and downside risks to the economic outlook. China stepped up efforts to deleverage corporate debt in 2017. This has helped contain, but not resolve, the problem of lingering credit risks in China. The risk of protectionism has increased under the current US administration. This could result in a global trade war that has the potential to harm growth on a global scale. There are also worries about the impact that the scaling back of central banks’ “quantitative easing” measures will have on markets. However, central banks have been very diligent so far in communicating their plans and have adopted a gradual approach that is likely to mitigate this risk. Nevertheless, this risk could become more significant in a rising inflation environment. Political risks in Europe that dominated the headlines in early 2017 (eg, elections in France and the Netherlands) have lessened, although the risk of a disorderly Brexit arguably increased during 2017 given the slow progress in the Brexit negotiations. In addition, geopolitical risks (North Korea, Middle East, etc.) remain elevated, but their economic consequences are hard to quantify.
These risks would affect re/insurers mainly via adverse asset price movements and slower growth potential in affected markets. In addition, a “flight to quality” could lead to a drop in interest rates and exacerbate the challenges from the persistent low yield environment.
Upside opportunities could result in stronger growth and would be beneficial for the re/insurance industry. Investment yields would improve, albeit only slowly, and premium volumes would rise along with economic activity. However, inflation may increase along with stronger growth. Should inflation remain elevated over several years, this could have a sizeable impact on re/insurance claims, especially in casualty lines.
One key upside risk comes from US fiscal policy. The tax bill passed in late 2017 included more front-loaded benefits than earlier drafts. A resulting fiscal boost is expected to add modestly to growth in 2018 and 2019. If those benefitting from the tax cut spend a larger proportion of the windfall than currently expected, growth could turn out to be even stronger. Other upside risks include stronger performance in the Euro area as the cyclical upswing may prove to be more robust than expected, and a resilient UK economy if Brexit is less damaging than predicted. Finally, China could maintain growth of near 7% rather than slow gradually, benefiting Asia overall and global commodity exporters in particular.
The second research question focus is the effect of loose monetary policy on structural reform of the economy. Empirical results show that loose monetary policy leads to a slowdown in the pace of structural reform implementation. The prevailing monetary policy environment of recent years has allowed governments to borrow at essentially zero cost, and that has reduced the incentive to implement reforms.
The SRI/LSE research has been presented at several forums, including the annual Jackson Hole Economic Policy Symposium (organised by the Federal Reserve Bank of Kansas City) and at the Peterson Institute for International Economics. Furthermore, together with the LSE, we hosted two roundtable discussions bringing together central bank officials, policy makers, private-sector agents and researchers. Looking ahead, Swiss Re will continue to contribute actively to the dialogue. Our goal is to strengthen the capacity of the insurance industry as a risk absorber and facilitator of financial market and economic resilience, and to ensure that investors are able to act on a long-term basis.
Market performance Premiums have risen moderately in almost all countries/regions in 2017 due to stronger economic growth. Global non-life premiums are up an estimated 3% in real terms, after a 2.3% gain in 2016. Underwriting conditions have remained soft, particularly in commercial insurance.
In the advanced economies, real premiums have grown by about 2% in 2017, up slightly from 1.5% in 2016. The US market expanded by 4.7%, fueled by strong growth in motor premiums. In Western Europe, stronger motor business in Germany, France, Spain and the UK supported premium growth. Growth was weak again in Italy due to continued softening in motor, albeit at a more moderate pace than in previous years. In Japan, premiums resumed mild real growth of 1% in 2017, after a 0.5% decline in 2016, which was driven by a sharp decline of long-term fire products. Compulsory motor premiums declined due to premium rates cut. In Australia, premiums were up 2%, while growth in personal lines remained solid and commercial insurance premiums returned to growth on the back of better economic performance and rising premium rates.
Global non-life industry profitability has declined in 2017, with return on equity (ROE) down to 3% from 6% in 2016, and well below 10% in 2013 and 2014. The 2017 results have been driven by three main factors: soft underwriting conditions, low investment yields and large natural catastrophe losses in the US. Investment returns for non-life insurers remain under pressure. Average yields are low and operating cash flows are weak given slowing premium growth and weak underwriting results. The contribution of investment returns to profitability has declined further in 2017 to around 9% of net premiums earned.
During the first half of 2017, the personal lineś combined ratio deteriorated by 0.9 percentage points to 103.8%. The combined ratio for commercial lines, however, improved 0.4 percentage points to 96.4%. Underwriting profitability in Europe was more or less stable in the first half of 2017 compared to the full-year 2016. Generally, the markets profited from low natural catastrophe losses, which helped property lines. Claims costs in motor insurance continued to trend upwards in the most important markets. In Germany, underwriting profitability fell by 1 percentage point during the first half of 2017 due to increased claims in virtually all lines of business. In Italy, the Nordics and Switzerland, underwriting profits have remained stable. Non-life insurerś profitability in Australia has improved in 2017, despite higher natural catastrophe losses. This reflects higher premium rates, reserve releases and higher reinsurance protection. In Japan, domestic non-life insurers are estimated to have had stable underwriting profits in 2017, driven mainly by benign natural catastrophe losses.
Assuming average natural catastrophe losses, overall underwriting profitability globally is expected to improve in 2018. Positive rate dynamics and demand for new types of cover is expected to support premium growth in the coming years.
Market Size in USD billions Estimated global premium income in 2017
Market performance Global premiums in non-life reinsurance are estimated to have grown by 3% in 2017 in real terms, based on rapidly increasing cessions from emerging markets.
The capital position of global reinsurers was more or less stable over the recent years. Capital growth has been managed increasingly via dividend payments and share buy-back programmes, hence returning almost all of the industry ś net income to shareholders. Nevertheless, there was still some excess capital in traditional reinsurance by mid 2017, and this has been significantly reduced by the losses from hurricanes Harvey, Irma and Maria.
In 2018, advanced markets non-life reinsurance premium growth will likely reflect a hardening of rates and slightly stronger nominal growth in the primary market. Demand should also be supported by new solvency regulations: non-life reinsurance has become more attractive for European insurers under Solvency II, since it better reflects the risk mitigating effect of reinsurance.
Market overview The global life insurance industry generated about USD 2 800 billion in premium income in 2017, of which about 20% came from emerging markets. Around 85% of premium income in life insurance is derived from savings and retirement products. The protection business, which covers mortality and morbidity risks and represents the balance of the market, has a declining share of premium income.
Market performance Global primary life insurance premiums are estimated to have risen by about 3% in 2017 in real terms, up from 2% in 2016. Emerging markets, and in particular China, account for most of the recent acceleration. Life premiums in advanced markets remain flat, which is at least an improvement from the 2% decline in 2016.
The savings business contracted or slowed due to low interest rates, equity market volatility and the impact of pension reforms in some markets. Low interest rates have made it harder for insurers to earn enough investment income and in many countries, guarantees and profit sharing have been reduced. Savings-type insurance has also become more expensive for regulatory reasons (e.g., higher capital requirements for long-term guarantees, or asset/liability mismatches). This has made savings-type insurance less attractive for both policyholders and suppliers. Together with adjusting their products and offering more flexible guarantees, insurers are introducing new concepts such as a guarantee of a certain return over the full duration of the contract, rather than an annual return.
Outlook Global life insurance premiums in real terms are forecast to rise by around 4% in 2018. The major drivers are likely to remain the emerging markets, where stable, robust economic growth, expanding populations, urbanisation and a rising middle class underpin the positive outlook. Life premium growth in the emerging markets is expected to be around 10% in 2018. Premiums in the advanced markets are expected to grow by a more modest 1‒2% after adjusting for inflation, with the Asia-Pacific region forecast to grow by 2‒3%.
Market size in USD billions Estimated global premium income in 2017
In the ongoing low interest rate environment, low government bond yields remain a significant headwind for life insurers. The challenge is particularly pronounced in Europe, Japan, South Korea and Australia, where many insurers are barely generating sufficient investment returns: on the one hand to meet their obligations to policyholders, reflecting the legacy of existing life insurance obligations with embedded guarantees, and the restricted ability to offer sufficiently attractive returns on new business to compete with alternative retail savings products. In this business environment, life insurerś overall profitability remains under pressure.
Market overview The size of the global life reinsurance business was around USD 70 billion in 2017. Most (65%) of this is attributable to the US, Canada and the UK. Ceding companies from emerging markets accounted for only 14% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business.
Market performance The life reinsurance industry registered a 4% increase in 2017. Underlying reinsurance premium growth in traditional reinsurance areas like mortality and morbidity risk has remained relatively subdued this year with an estimated growth rate of 1% in real terms in 2017. In mature markets, slight contractions in the US and UK were set off by positive developments in Canada, Japan, Australia and Continental Europe. In the emerging markets, premiums grew by 11%, driven largely by China, with other emerging markets seeing more modest growth.
Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has prompted much of this activity. In Europe, for example, Solvency II has underpinned interest in reinsurance to boost available capital, reduce required regulatory capital or to economise on reserves.
Market performance Estimated global premium growth in 2017 reinsurance arrangements enable primary insurers to monetise their expertise in sourcing, analysing and pricing risk, without having to commit full balance sheet capacity to hold the business for its full duration.
Outlook Continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional renewable business. Premium growth will nonetheless likely remain modest, especially in the large advanced markets. In real terms, global life reinsurance premiums are forecast to increase by just over 1% in 2018. Premiums in the advanced markets are projected to decline after adjusting for inflation, driven by developments in the US where cession rates continue their long-term down trend and growth in the primary market remains weak. In Western Europe, where cession rates are usually lower, reinsurance premiums are forecast to grow by about 1%. The strongest contribution to real growth in the advanced markets will likely come from developed Asia.
Risk knowledge Swiss Re is a risk knowledge company that invests in risk pools. We apply our knowledge to support capital allocation 26 Swiss Re 2017 Financial Report
Our focus on growth is threefold: catering to the specific clients’ needs with large and tailored transactions in Reinsurance, getting closer to the policyholders through Corporate Solutions and Life Capital, as well as maintaining our leading position in high growth markets through increased presence.
Technological innovation is another source of differentiation, especially when we can use it to deliver unique products and solutions, such as CatNet and Magnum. CatNet plots hazard, loss, exposure and insurance information over maps and satellite imagery to help visualise the risk of individual locations or entire client portfolios. Magnum is the market-leading automated life and health underwriting and claims solution for assessing biometric risk across the spectrum of protection insurance products. Magnum helps our clients get closer to their customers and deliver products that are more tailored to their needs.
Income before interest and income tax expense 4 978 1 091 –78 Interest expenses –606 –566 –7 Income before income tax expense 4 372 525 –88 Income tax expense –749 –132 –82 Net income before attribution of non-controlling interests 3 623 393 –89
Total shareholders’ equity as of 1 January 33 517 35 634 6 Net income attributable to common shareholders 3 558 331 –91
Change in unrealised gains/losses on securities, net 1 711 287 –83 Change in other-than-temporary impairment, net of tax 6 3 –50 Change in foreign currency translation –387 526 — Purchase/sale of treasury shares and share based payments –1 084 –1 100 1 Other changes in equity –126 2 — Total shareholders’ equity as of 31 December 35 634 34 124 –4 Non-controlling interests 82 170 107 Total equity as of 31 December 35 716 34 294 –4 28 Swiss Re 2017 Financial Report
Investments for unit-linked and with-profit business 32 178 35 166 9 Cash and cash equivalents 9 011 6 806 –24
Liabilities and equity Unpaid claims and claim adjustment expenses 57 355 66 795 16 Liabilities for life and health policy benefits 41 176 42 561 3
Swiss Re’s estimated insurance claims from large natural catastrophes, including Cyclone Debbie in Australia, the Atlantic hurricanes, the Mexican earthquakes and the Californian wildfires amounted to USD 4.7 billion in 2017, net of retrocession and before tax. In 2016, the Group had reported a net income of USD 3.6 billion, incurring natural catastrophe claims of USD 0.8 billion.
“ In a year marked by disasters, Swiss Re could demonstrate the critical role re/insurance plays in enabling people and economies to recover.”
retrocession and before tax. The net operating margin was –1.3%, compared to 15.4% in the prior-year period.
Life & Health Reinsurance contributed a net income of USD 1.1 billion in 2017, up from USD 807 million in 2016, driven by a stable underwriting result and strong investment performance. The net operating margin increased to 13.1% in 2017 from 10.4% in the previous year.
Corporate Solutions incurred a net loss of USD 741 million in 2017, compared to a net income of USD 135 million in the prior year, significantly impacted by large natural catastrophes, which generated insurance claims of USD 1.0 billion, net of retrocession and before tax. The net operating margin was –23.5% and 4.2% for 2017 and 2016, respectively.
Life Capital delivered a net income of USD 161 million in 2017, compared to USD 638 million in 2016. Large one-off realised gains on the investment portfolio in the prior year were, as expected, not repeated in 2017. As a result, Life Capital’s net operating margin declined to 10.9% in 2017, compared to 27.0% for 2016.
Common shareholders’ equity, excluding non-controlling interests and the impact of contingent capital instruments, decreased to USD 33.4 billion at the end of 2017, down from USD 34.5 billion at the end of 2016. The decline mainly reflected a payment to shareholders of USD 2.6 billion for the 2016 regular dividend and the share buy-back programmes, partially offset by a change in unrealised gains and favourable foreign exchange rate movements.
Book value per common share stood at USD 106.09 or CHF 103.37 at the end of 2017, compared to USD 105.93 or CHF 107.64 at the end of 2016. Book value per common share is based on common shareholders’ equity and excludes non-controlling interests and the impact of contingent capital instruments.
Property & Casualty Reinsurance contributed USD 16.7 billion of premiums earned in 2017, a drop from USD 17.0 billion in 2016. The decline was driven by continued underwriting discipline and active portfolio management. The Property & Casualty Reinsurance combined ratio was 111.5% in 2017, up from 93.5% in the prior year due to the severe large natural catastrophe losses, partially offset by favourable prior-year development.
Life & Health Reinsurance premiums earned and fee income totalled USD 12.0 billion in 2017, an increase of 3.9% year-on-year, driven by new business in the Americas and Asia.
Corporate Solutions premiums earned were USD 3.7 billion for 2017, an increase of 4.2% compared to the previous year. The Corporate Solutions combined ratio was 133.4% in 2017, up from 101.1% in the previous year, reflecting the significant natural catastrophe losses in 2017.
Premiums earned and fee income for Life Capital increased by 17.9% to USD 1.4 billion, mainly driven by growth in the open book life and health insurance business. Life Capital continued to generate strong gross cash amounting to USD 998 million in 2017, up from USD 721 million in 2016, benefiting from strong underlying surplus, including an update to mortality assumptions and the finalisation of the 2016 year-end Solvency II statutory valuation.
Acquisition costs for the Group amounted to USD 7.0 billion in 2017, slightly up from USD 6.9 billion in 2016.
Operating expenses of USD 3.3 billion in 2017 decreased by 1.5% year-on-year.
Competitive advantage in underwriting In the world of re/insurance underwriting, Swiss Re can outperform in two ways. First, we can change the capital allocated to particular risk pools as markets move and we develop new insights. Second, we can be selective in underwriting individual risks.
Systematic allocation of capital to risk pools is at the heart of our Group strategy. An annual top-down capital allocation underpins our business planning process; throughout the year, we actively steer our deployed capacity to maximise return. This activity is rooted in our ability to take a forward-looking perspective on the economics of risk pools and allocate capital accordingly.
“ Focused and targeted R&D will maintain our market leading ability to steer through allocating capital to risk pools, and distinctively underwrite risks.”
The common thread is our investment in R&D, which equips our underwriters with distinctive knowledge and insights into the future of risk pools. The launch of the Swiss Re Institute in 2017 embodies our commitment to creating and benefiting from cutting-edge knowledge and conducting fundamental research into trends that could have an impact on our business.
Our investment includes 450 people in core and extended R&D teams committed either wholly or partially to developing our knowledge assets. To give just a few examples, in the past year alone we have investigated long-term mortality trends, evaluated the impact of distracted driving, evaluated changes in the propensity to litigate and estimated the impact of changing mid-Atlantic temperatures. We combine data and innovative analytical tools, and partner with academics from institutions around the world, consultants, professionals from all disciplines, start-ups, institutions and others. This translates into real bottom-line impact through services to our clients, automated pricing tools, inputs to underwriters and research behind our forward-looking perspectives on risk pools.
Underwriting performance in 2017 Notwithstanding the natural catastrophes in 2017, the Group’s overall underwriting performance was solid across all businesses. Financial year results were dominated by insured natural catastrophe losses figuring among the largest on record, and further influenced by a continued softening market environment in 2017.
Strategy Swiss Re’s investment portfolio maintained its track record of sustainable performance results, with another strong contribution in 2017. All asset classes contributed to the result, reflecting the diversification of investment income sources as well as the quality of the investment portfolio. During 2017, Swiss Re increased its overall allocation to government bonds and credit investments alongside a reduction in cash and short-term investments, enhancing income with low-duration risk. The allocation to equities and alternative investments remained relatively stable. While the investment portfolio is well-positioned overall, the Group maintains suitable flexibility should it be presented with attractive market opportunities or a change in the investment outlook.
“ Our strong investment result and steady performance provide a significant value driver for the Group.”
at levels broadly similar to those at the beginning of the year. Notably, financial market volatility has remained exceptionally low across the major asset classes.
The return on investments for 2017 was very strong at 3.9%, with over 85% of the result attributable to net investment income as well as net realised gains from equities and alternative investments. This compared to a return on investments of 3.4% in 2016, with the increase primarily due to additional net realised gains related to equity securities. The Group’s non-participating net investment income was relatively stable at USD 3.7 billion in 2017 compared to the prior year. The Group’s fixed income running yield was steady at 2.9%.
higher level of economic loss. Closing this protection gap will deliver a clear benefit to our clients and will help make the world more resilient.
We interact with clients across all levels and functions, enabling strategic discussions between the right people at the right time. This dedicated delivery model — serving global, large as well as regional and national clients — continues to be effective.
The role of technology The use of ever-changing technology is a crucial aspect of our business. We identify challenges along the entire insurance value chain that technology could solve. We also work with our partners to exploit new developments and advances. Our focus is on solving business challenges, whether for our clients or ourselves.
We also prioritise internal efficiency. One example is our P&C Business Management Intelligence tool, which leverages big data techniques for claims management. Technology is a critical catalyst for change which we will continue to use in order to more effectively address the needs of both our clients' and ourselves.
In 2017, Swiss Re announced plans to strengthen its presence in Asia with its regional headquarters, Swiss Re Asia Pte. Ltd. (Swiss Re Asia), reinforcing its commitment to this key region. Swiss Re Asia was registered in Singapore on 31 December 2017, marking the launch of the new headquarters.
This move also aligns the company’s legal entity structure across its Asia, Europe and Americas regions. Swiss Re Asia will continue to serve its clients and partners through its network of offices, mirroring its existing footprint in Australia, China, Hong Kong, India, Japan, Korea, Malaysia and Singapore.
The Asian insurance sector has seen strong growth over the past decade, with the region now accounting for one third of global insurance premiums (based on 2017 estimate), compared to 20% in 2007. The outlook remains robust. Swiss Re expects the region’s non-life and life premiums to grow by 5% and 6% respectively, in real terms per annum in the coming decade. Emerging Asian insurance markets will grow even faster.
Swiss Re has been associated with Asia since 1913 and has over 1 900 employees in the region.
Property & Casualty Reinsurance reported a net loss for 2017 of USD 413 million compared to a net income of USD 2.1 billion in 2016. The decrease was mainly driven by the adverse large loss experience (estimated total insurance claims of USD 3.7 billion) mainly stemming from Cyclone Debbie, hurricanes Harvey, Irma and Maria in the Americas, the two earthquakes in Mexico and the wildfires in California. These losses were only partially offset by favourable prior-year development and a strong overall investment result. The net operating margin was –1.3% in 2017, down from 15.4% in 2016.
Administrative expense ratio The administrative expense ratio of 7.0% in 2017 was in line with the 7.1% ratio in 2016.
The Casualty combined ratio increased to 108.8% in 2017, compared to 103.9% in 2016, driven by adverse developments in Motor in both EMEA and the US.
Expenses Claims and claim adjustment expenses –10 301 –13 172 28 Acquisition costs –4 405 –4 253 –3 Operating expenses –1 204 –1 159 –4 Total expenses before interest expenses –15 910 –18 584 17
Income/loss before interest and income tax expense 2 890 –239 — Interest expenses –293 –280 –4 Income/loss before income tax expense 2 597 –519 — Income tax expense/benefit –479 125 — Net income/loss before attribution of non-controlling interests 2 118 –394 —
Claims ratio in % 60.5 79.0 Expense ratio in % 33.0 32.5 Combined ratio in % 93.5 111.5 38 Swiss Re 2017 Financial Report
Outlook Recent natural catastrophe events led to rate increases for Property in lossaffected markets with ranges depending on the client and market loss. Rates have increased more moderately in most other markets.
We observed notable differences by line of business for Specialty lines with rate increases for loss-affected lines and markets, and moderately improving conditions in general.
For Property and Casualty generally, we reduced our participation or exited accounts where we could not get the rate adjustment or terms and conditions that we deemed appropriate. Our focus remains on the bottom line in a recovering but still challenging market environment.
We seek to execute our successful differentiation strategy and to support our clients to reach their ambitions.
Net income was USD 1.1 billion for 2017, a significant increase from the previous year’s net income of USD 807 million, mainly due to higher realised gains from sales of equity securities and stable underwriting performance. The underwriting result in the current year reflected the transactions closed and continued growth in the US and Asian markets and net positive valuation updates, partly impacted by adverse claims experience in the US individual life and UK critical illness portfolios. The return on equity was 15.3%, compared to 12.8% reported for 2016.
This was partly offset by the adverse performance in the UK critical illness business and a lower investment income allocation.
Investment result The return on investments for 2017 was 4.3%, compared to 3.6% in 2016, reflecting an increase in the investment result of USD 280 million.
Fee income from policyholders 41 129 — Net investment income – non-participating business 1 279 1 308 2 Net realised investment gains/losses – non-participating business 232 591 155 Net investment result – unit-linked and with-profit business 15 81 — Other revenues 5 3 −40
Management expense ratio in % 6.0 5.7 Net operating margin in % 10.4 13.1
Outlook We expect life and health reinsurance business to be relatively flat in mature markets and to increase in high-growth markets. In mature markets, the prolonged low interest rate environment continues to have an unfavourable impact on long-term life business. Cession rates in the US have decreased in recent years as primary insurers retain more risk, but have now generally levelled off. However, we see a strong focus on capital, risk and balance sheet optimisation in mature markets, leading to opportunities for large transactions. High-growth markets are expected to see strong increases in primary life and health volumes and cession rates are expected to be stable.
We will continue to pursue growth opportunities in high-growth markets and in large transactions, including longevity deals. We are responding to the expanding need for health protection driven by ageing societies and we will apply our risk knowledge experience to help reduce the protection gap in all regions.
Corporate Solutions – Corporate Solutions results were significantly impacted by natural catastrophe events.
Strategy and priorities Swiss Re strengthened Corporate Solutions’ capital position, underlining the Group’s commitment to the business and its long-term strategy. Corporate Solutions continued to make progress on its strategy with investment into its Primary Lead capabilities and further broadened its footprint.
In July 2017, Corporate Solutions finalised the previously announced transaction and began its joint venture with Bradesco Seguros S.A. in Brazil – now one of the leading large-risk insurers in the country – to bring our innovative product offering to an even wider segment of mid-sized and large corporate clients. Corporate Solutions is now concentrating its efforts on the integration of Bradesco’s large-risk portfolio and leveraging its established distribution network.
Agostino Galvagni CEO, Corporate Solutions 42 Swiss Re 2017 Financial Report
Premiums Net premiums earned were USD 3.7 billion in 2017, an increase of 4.2% compared to 2016. The increase was driven by organic and inorganic growth across most lines of business. Gross premiums written and premiums for insurance in derivative form, net
Lines of business The Property combined ratio for 2017 deteriorated by 89.6 percentage points to 174.0%, reflecting the impact of the above-mentioned hurricanes, Californian wildfires, the earthquake in Puebla, Mexico and tropical Cyclone Debbie in Australia earlier in the year.
Net investment income 138 161 17 Net realised investment gains/losses 51 128 151 Other revenues 5 5 —
Income/loss before interest and income tax expense 157 –926 — Interest expenses –23 –23 — Income/loss before income tax expense 134 –949 — Income tax expense/benefit –1 203 — Net income/loss before attribution of non-controlling interests 133 –746 —
Investment result The return on investments was 3.4% for 2017, compared to 2.5% in 2016, reflecting an increase in the investment result of USD 86 million, stemming from higher net realised gains.
Shareholdersʼ equity Common shareholdersʼ equity increased by USD 0.2 billion to USD 2.4 billion at the end of 2017, due to the Group’s injection of USD 1 billion capital in the fourth quarter, partially offset by the net loss for the period and a dividend of USD 150 million paid to the Group in the second quarter of the year. The return on equity was –32.2% in 2017, compared to 6.0% in 2016.
Outlook Prices for commercial insurance have been under significant pressure in the past years, with a majority of segments operating at unsustainable rate levels since 2015. We expect a mediumpaced, steady increase of prices over the next 12 to 18 months following the recent natural catastrophe events, with most pronounced increases in property in the US and a reinforced focus on terms and conditions. Corporate Solutions will maintain its commitment to underwriting discipline.
Through our industry-leading Claims Commitment, we aim to keep it simple and tailor our approach to our customers’ needs and preferences. Working with our customers and brokers, our claims professionals promptly investigate, evaluate and develop an appropriate resolution strategy. Where we have a duty to defend, we will work to determine, as early as possible, our customer’s preferred approach to whether the claim should be settled or defended.
In the event of an insured first-party property loss, we help our insureds get back to business quicker by making advance payments of up to 50% of our covered loss estimate.
2017 CLAIMS COMMITMENT – A DIFFERENCE THAT CUSTOMERS AND BROKERS FEEL
Life Capital seeks to optimise capital and asset management and to maximise cash generation and return on equity. In the closed book business, the focus remains on achieving operational efficiencies by leveraging our operating platform. In the open book business, Life Capital continued to invest in its technology platform during 2017, to position both elipsLife and iptiQ to grasp growth opportunities in their respective businesses.
Net premiums written 681 859 26 Change in unearned premiums 13 91 —
Fee income from policyholders 499 457 −8 Net investment income – non-participating business 1 256 1 193 −5 Net realised investment gains/losses – non-participating business 503 133 −74 Net investment result – unit-linked and with-profit business 5 367 3 234 −40
Performance In 2017, net income for Life Capital was USD 161 million, a decline from USD 638 million in 2016, with the 2016 performance benefiting from large one-off realised gains on the investment portfolio that were, as expected, not repeated. The underlying performance in 2017 was supported by realised gains on sales of fixed income securities and favourable UK investment market performance.
Life Capital paid a dividend of USD 1.1 billion to the Group during June 2017, driven by the strong capital position of the ReAssure business.
Investment result The return on investments was 3.4% for 2017, compared to 4.0% in 2016. The prior-year result included significant net realised gains from interest rate derivatives as well as higher net investment income.
Net investment income decreased by USD 48 million to USD 894 million in 2017, mainly due to a negative impact from foreign exchange rate movements.
Shareholdersʼ equity Common shareholdersʼ equity decreased by USD 0.2 billion to USD 7.1 billion, compared to 31 December 2016. The decrease was mainly driven by a USD 1.1 billion dividend paid to the Group, partially offset by net income and higher unrealised gains in 2017. The annualised return on equity was 2.2% for 2017, compared to 10.4% for 2016. The year-on-year decrease was due to lower net income in 2017.
Since its creation, iptiQ has successfully onboarded, and has been contributing to the success of 12 distribution partners.
One of the ways Life Capital does this is through its B2B2C entity iptiQ, which partners with distributors to help individuals address their protection needs. Main products offered include term-life, whole of life, disability and critical illness. In the past year, iptiQ’s new policy sales more than doubled driven by the successful onboarding of new distribution partners, the extension of products and higher convergence of sales leads.
In 2017, iptiQ enabled a large Swiss Re Property and Casualty reinsurance client to become a multi-product insurer in a new country, adding a digital life insurance solution to their line in less than six months. The client was able to enhance their value proposition while maintaining their branding and customer journey. iptiQ’s simple and transparent digital solution was the client’s preferred choice in a highly competitive market for a number of reasons: ̤ Full branding control ̤ Ability to launch a new line of products within just months ̤ Ability to access a digital end-to-end solution without investment costs ̤ Ability to provide customers with a best-in-class experience and optimised customer journey without disruption
The Board of Directors proposes to the 2018 AGM to authorise the company to repurchase own shares for the purpose of cancellation by way of a public share buy-back programme of up to CHF 1.0 billion purchase value to be executed before the 2019 AGM.
Swiss Re shares Swiss Re had a market capitalisation of CHF 31.9 billion on 31 December 2017, with 349.5 million shares outstanding, of which 314.6 million were entitled to dividends. Swiss Re shares are listed in accordance with the International Reporting Standard on the SIX Swiss Exchange (SIX) and are traded under the ticker symbol SREN.
Share price performance Swiss Re shares opened the year at CHF 97.15. An intra-day high of CHF 98.50 was achieved on 4 January 2017. On 8 September 2017, the shares experienced an intra-day low of CHF 81.65. The year-end share price was CHF 91.25.
During 2017 the STOXX Europe 600 Insurance index (SXIP) increased by 6.9% and the broader index of Swiss blue chips (SMI) increased by 14.1%. The Swiss Re share decreased by 5.4%.
The Group aims to ensure a superior capitalisation at all times and maximise financial flexibility, growing the regular dividend with long-term earnings and at a minimum maintaining it. Swiss Re will then deploy capital for business growth where it meets its strategy and profitability requirements and finally repatriate further excess capital to shareholders, with the preferred form of future capital repatriation being share buy-back programmes.
Public share buy-back programme The Board of Directors launched on 3 November 2017 the public share buy-back programme authorised by the 2017 AGM. This programme was completed on 16 February 2018.
Weighting in indices As of 31 December 2017 Index weight (in %)
Sustainability indices Dow Jones Sustainability Europe 0.71 Dow Jones Sustainability World 0.29 FTSE4Good Global 5.00 50 Swiss Re 2017 Financial Report
Sustainability World and Europe, FTSE4Good, Euronext Vigeo Europe 120, the MSCI ESG Leaders and MSCI Global Socially Responsible (2017) index families. In May 2017, Swiss Re received a AAA rating on the MSCI ESG assessment.
2 Includes 4.4m shares repurchased under the share buy-back programme launched on 12 November 2015, which concluded on 2 March 2016. 3 Includes 5.5m shares repurchased under the share buy-back programme launched on 4 November 2016, which concluded on 9 February 2017. 4 Includes 6.3m shares repurchased under the share buy-back programme launched on 3 November 2017, which concluded on 16 February 2018. 5 In addition to the regular dividend of CHF 3.50 per share a special dividend of CHF 4.00 per share was paid in 2013. 6 In addition to the regular dividend of CHF 3.85 per share a special dividend of CHF 4.15 per share was paid in 2014. 7 In addition to the regular dividend of CHF 4.25 per share a special dividend of CHF 3.00 per share was paid in 2015. 8 Dividend divided by year-end share price of corresponding year. 9 Calculated by dividing net income by the weighted average number of common shares outstanding. 10 Based on shareholders’ equity (excluding convertible perpetual capital instruments) divided by the number of external common shares entitled to dividend. 11 Based on shares outstanding.
Investment activities generated an EVM profit of USD 1.5 billion in 2017 compared to a profit of USD 1.1 billion in 2016. The results in both years reflected a positive impact from credit spread tightening and performance across equities and alternative investments, while the 2017 result also reflected a favourable performance from Principal Investments.
Economic net worth (ENW) per share growth was 10.8% in 2017, achieving the over-the-cycle target of 10%, driven by the total contribution to ENW and favourable foreign exchange impacts.
1 ENW per share growth is calculated as follows: (current-year closing ENW per share + current year dividends per share) / (prior-year closing ENW per share + current year opening balance sheet adjustments per share).
Economic net worth per share growth, %1 11.0 10.8 Profit margin − new business, % 3.1 −4.1 Profit margin − previous years’ business, % −2.9 −0.8 Profit margin − investments, % 12.0 16.5
Profit margin − new business, % 1.9 11.0 −4.2 − 3.1 Profit margin − previous years’ business, % 5.1 −4.7 −2.1 −17.8 −2.9
conversions and the restructuring of an intra-group retrocession agreement in Australia and lower capital costs, partially offset by mortality and critical illness assumption updates in the US and UK, respectively. Investment activities generated an EVM profit of USD 627 million in 2017 compared to USD 596 million in 2016. The results in both years were positively impacted by credit spread tightening as well as performance from equity securities.
Corporate Solutions reported an EVM loss of USD 917 million in 2017 compared to a loss of USD 111 million in 2016. The EVM loss on new business was USD 595 million higher compared to 2016, significantly impacted by hurricanes Harvey, Irma and Maria, the earthquake in Puebla, Mexico and the California wildfires, partially offset by a lower impact from the non-recognition of intangible assets relating to acquisitions. The EVM loss on the Bradesco acquisition in 2017 was USD 81 million, whereas the EVM loss on the IHC acquisition in 2016 was USD 148 million. The EVM loss on previous years’ business was USD 257 million, driven by less favourable reserve development and higher natural catastrophe losses. Investment activities generated an EVM profit of USD 79 million in 2017 compared to a profit of USD 59 million in 2016, with results in both years reflecting a positive impact from credit spread tightening as well as performance from equity securities.
Other −240 136 Gross underwriting result – new business 6 166 3 502
Net underwriting result – new business 2 852 112 Taxes −744 18 Capital costs −1 224 −1 475 EVM profit – new business 884 −1 345 EVM profit – previous years’ business −579 −148 EVM profit – underwriting 305 −1 493 Investment result Mark-to-market investment result 7 500 5 132 Benchmark investment result −4 266 −1 761
Cash and cash equivalents 9 007 6 467 In-force business assets 197 647 224 231
Gross premiums and fees growth rate, % −1.7 34.7 8.7 17.2 15.3
Premiums and fees retention rate, % 99.7 101.1 91.2 40.7 98.6 Premiums and fees growth rate, % −1.4 33.9 4.5 0.6 14.8
Capital costs −598 −281 −143 −49 −153 −1 224 EVM profit – new business 280 1 095 −144 −163 −184 884 EVM profit – previous years’ business 311 −494 −26 −406 36 −579 EVM profit – underwriting 591 601 −170 −569 −148 305 Investment result Mark-to-market investment result 1 626 2 317 261 3 211 85 7 500
Gross premiums and fees growth rate, % −4.5 −20.5 0.5 32.8 −11.4
Premiums and fees retention rate, % 99.0 100.3 90.1 55.0 97.5 Premiums and fees growth rate, % −5.1 −21.1 −0.6 79.3 −12.4
Total liabilities and economic net worth 81 857 299 921 18 058 126 534 8 201 −112 002 422 569
Economic net worth as of 1 January 14 279 10 752 2 808 3 801 5 010 −2 36 648
Dividends and share buy-back −1 950 −650 −150 −1 058 1 179 −2 629 Other, including foreign exchange on economic net worth 1 035 799 1 010 248 −1 308 −3 1 781 Economic net worth as of 31 December 12 410 13 081 2 918 3 978 5 285 −5 37 667
Comparison of EVM and US GAAP The most significant differences between EVM and US GAAP are as follows: ̤ Discounting: For EVM, all future expected cash flows are discounted using risk-free interest rates. Under US GAAP, most property and casualty reserves are undiscounted (except for reserves acquired in business combinations), whereas life and health reserves are usually discounted based on locked-in interest rate assumptions.
̤ Reserving basis: For EVM, best- estimate current assumptions are used for all re/insurance reserves. Under US GAAP, life and health assumptions are usually locked-in and can include a provision for adverse deviation.
̤ Recognition differences: EVM considers the economic value related to annual management charges on unit-linked funds and adjusts for counterparty credit risk in the valuation of insurance related net assets. In addition, EVM does not show minority interests on the balance sheet, but consolidates assets and liabilities based on the proportion of the interest held by Swiss Re.
To the Board of Directors of Swiss Re Ltd on the Economic Value Management financial information as of 31 December 2017
Our independence and quality control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
Conclusion In our opinion, the EVM financial information of the Company for the year ended 31 December 2017 as set out on pages 57 to 63 is prepared, in all material respects, in accordance with the Company’s EVM principles applied as published on the Company’s website (swissre.com/EVM_principles).
This report does not extend to any other financial information of the Company.
Despite a challenging year, Swiss Re maintained a very strong capital position. Controlled risk-taking and active capital management underpin our financial strength.
Overview 68 Capital management 70 Liquidity management 73 Risk management 75 Risk assessment 81
Overview Our capital strength enables us to respond to market developments. Despite large industry losses, we remained strongly capitalised. This reflects our efficient capital allocation and effective risk governance and steering approach throughout the Group.
As part of the Group’s target capital structure, Swiss Re created further financial flexibility by establishing a USD 750 million pre-funded truly perpetual subordinated debt facility that has a fixed credit spread for life (see page 70).
Our proprietary integrated risk model provides a meaningful assessment of the risks to which the Group is exposed and represents an important tool for managing our business. It determines the capital requirements for internal purposes and forms the basis for regulatory reporting under the Swiss Solvency Test (SST) and under Solvency II for our legal entities in continental Europe. With the approval of our internal model under FINMA’s revised process, we achieved a key milestone in 2017.
Swiss Re’s risk profile in 2017 During 2017, Swiss Re’s overall risk remained broadly stable at USD 19.7 billion (compared to USD 19.5 billion at the end of 2016), as an increase in insurance risk was largely offset by lower financial market and credit risk.
Property and casualty risk increased, mainly driven by the strengthening of major currencies against the US dollar as well as an increase in property reserves following the 2017 natural catastrophe events. Natural catastrophe exposures decreased overall as a result of the Group's active cycle management.
The decrease in financial risk was mainly driven by a lower credit spread and lower credit risk.
3 Includes SRL’s pre-funded dated subordinated debt facilities and contingent capital instruments accounted for as equity. 4 Core capital of Swiss Re Group is defined as economic net worth (ENW).
Despite the large industry losses from natural catastrophe events, Swiss Re has remained strongly capitalised throughout 2017, allowing us to respond to potential market developments while continuing to repatriate excess capital to our shareholders.
Swiss Reinsurance Company Ltd redeemed three subordinated debt instruments totalling USD 0.9 billion on their first call date and further reduced senior leverage by USD 1.0 billion due to maturities.
Business Unit structure and capital allocation Our Business Unit structure enables us to allocate capital opportunistically to maximise shareholder returns. Following the string of severe natural disasters and supported by the Group’s strong capitalisation, we strengthened Corporate Solutions’ capital position in 2017. This underlines our commitment to the Business Unit’s long-term strategy, given the attractiveness of the commercial insurance market. Furthermore, the Group continues to invest in the growth of Life Capital’s open book businesses, while we remain disciplined in repatriating excess capital to our shareholders.
The cash dividends paid to Swiss Re Ltd since 2012 totalled USD 22.4 billion, providing the basis for the Group’s high financial flexibility. The total amount of capital returned to shareholders since the implementation of the new Group structure in 2012 is USD 15.4 billion.
External dividends to shareholders Based on the Group’s capital strength, the Board of Directors proposes an increase in the 2017 regular dividend to CHF 5.00 per share, up from CHF 4.85 in 2016. In addition, the Board of Directors proposes a public share buy-back programme of up to CHF 1.0 billion purchase value, commencing at the discretion of the Board of Directors after the AGM’s approval.
Swiss Re provides regulatory solvency reporting to FINMA under the rules of the Insurance Supervision Ordinance. This SST report is based on an economic view. We calculate available capital based on our Economic Value Management (EVM) framework and required capital under the SST using our internal risk model (see pages 54–63 for further information on EVM). The minimum requirement for the SST is a ratio of 100%. Swiss Re’s SST ratio materially exceeds the minimum requirement.
As of 31 December 2017 Financial strength rating Outlook Last update
Moody’s Aa3 Stable 19 December 2017 Standard & Poor’s AA– Stable 24 November 2017 A.M. Best A+ Stable 7 December 2017
Each rating agency uses a different methodology for this assessment; A.M. Best and S&P base their evaluation on proprietary capital models.
On 24 November 2017, S&P affirmed the AA– financial strength of Swiss Re and its core subsidiaries. The outlook on the rating is “stable”. The rating reflects Swiss Re’s extremely strong capital adequacy in excess of the ‘AAA’ benchmark and competitive position build on market leadership, long-standing reputation, and wide distribution networks across both life and non-life reinsurance.
̤ long-term liquidity needs are taken into account, both in our planning process and in our management of financial market risk.
20% Other developed market government bonds investment grade 20% Developed market supranational agencies and municipal bonds
The primary liquidity stress test is based on a one-year time horizon, a loss event corresponding to 99% tail value at risk (see pages 81–82), and a three-notch ratings downgrade.
Swiss Re’s liquidity stress tests are reviewed regularly and their main assumptions are approved by the Group Executive Committee. Swiss Re provides FINMA with a yearly report on its liquidity position, in accordance with FINMA’s circular 13/5, “Liquidity — Insurers.”
Embedded throughout the business, our Group Risk Management function ensures an integrated approach to managing current and emerging threats. Risk Management plays a key role in business strategy and planning discussions, where our risk appetite framework facilitates risk-return discussions and sets boundaries to Group-wide risk-taking.
Taking and managing risk is central to Swiss Re’s business. All risk-related activities, regardless of the legal entity in which they are undertaken, are subject to the Group’s risk management framework. Consequently, the framework is applied at Group level and cascaded to all legal entity levels whereby the three entities Swiss Reinsurance Company Ltd (SRZ), Swiss Re Corporate Solutions Ltd (SRCS) and Swiss Re Life Capital Ltd (SRLC) represent the top-level legal entities for the Business Units Reinsurance, Corporate Solutions and Life Capital.
̤ The Group Risk Policy is defined by the Group Board and articulates Swiss Re’s risk appetite framework (risk appetite and tolerance) as well as fundamental risk and capital structure principles.
Key risk management principles Swiss Re’s risk management is based on four fundamental principles. These apply consistently across all risk categories at Group and legal entity level: ̤ Controlled risk-taking – Financial strength and sustainable value creation are central to Swiss Re’s value proposition. The Group thus operates within a clearly defined risk policy and risk control framework.
̤ Clear accountability – Swiss Re’s operations are based on the principle of delegated and clearly defined authority. Individuals are accountable for the risks they take on, and their incentives are aligned with Swiss Re’s overall business objectives.
̤ Transparency – Risk transparency, knowledge sharing and responsiveness to change are integral to the risk control process. The central goal of risk transparency is to create a culture of mutual trust, and reduce the likelihood of surprises in the source and potential magnitude of losses.
̤ Risk taker – executes an objective within the authority delegated by the risk owner; risk takers are required to provide the respective risk controller with all information required to monitor and control their risks.
Risk-taking activities are typically subject to three lines of control. The first line comprises the day-to-day risk control activities performed by risk takers in the business as well as in Group functions. Independent oversight performed by functions such as Risk Management and Compliance represents the second line of control. The third line consists of independent audits of processes and procedures carried out by Group Internal Audit or by external auditors.
The risk culture framework serves to influence appropriate behaviour in four key aspects, which are assessed annually for all employees in the performance and compensation process: ̤ Leadership in providing clear vision and direction ̤ Consideration of risk-relevant information in decision-making ̤ Risk governance and accountability of risk takers as well as transparent flow of risk information
Group Board of Directors Responsible for the Group’s governance principles and policies, acting through the Finance and Risk Committee, the Investment Committee and the Audit Committee.
Legal entity CROs Responsible for risk oversight and establishing risk governance in their respective legal entities; supported by functional, regional and subsidiary CROs as well as dedicated risk teams.
Organisation of risk management The Group Board of Directors (Group Board, the Board) is ultimately responsible for Swiss Re’s overall risk governance principles and policies. It defines basic risk management principles and the risk appetite framework, including the Group’s risk appetite and risk tolerance; in addition, it approves the Group’s risk strategy. The Group Board mainly performs risk oversight and governance through three committees: ̤ Finance and Risk Committee − defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews top risk issues and exposures.
While the Risk Management organisation is closely aligned to Swiss Re’s business structure, in order to ensure effective risk oversight, all embedded teams and CROs remain part of the Group Risk Management function under the Group CRO, thus ensuring their independence as well as a consistent Group-wide approach to overseeing and controlling risks.
Risk Management is also in charge of actuarial reserving and monitoring of reserve holdings for SRCS and SRLC as well as their subsidiaries, while for SRZ and its subsidiaries the setting of the reserves is performed by valuation actuaries within the P&C and L&H Business Management units.
̤ Risk exposure control – allows Swiss Re to control its risk-taking decisions and total risk accumulations, including the passive risk we are exposed to through our operations.
In addition, Risk Management performs several risk control activities across multiple components of the risk management cycle, in particular: ̤ Model and tool assurance ̤ Valuation assurance ̤ Insurance risk reviews, to assess the quality of decision-making in the taking of underwriting risks by performing independent assessments of costing, pricing, wording and claims handling
̤ To maintain capital and liquidity at respectability levels that are sufficiently attractive from a client perspective, and that meet regulatory requirements and expectations.
In addition, Risk Management proposes risk capacity limits to ensure compliance with overall risk appetite and risk tolerance criteria. The risk capacity limits represent an aggregated constraint to risk-taking and seek to ensure that Group-wide accumulation risk remains within acceptable levels. They allow for risk monitoring and hence also for risk controlling during the execution of the plan. In addition to the risk capacity limits proposed by Risk Management, the Group Executive Committee also sets operational limits, which the business monitors and controls in day-to-day management.
Find more information about the risk appetite framework in our interactive online report.
Swiss Re’s internal risk model was approved by FINMA in November 2017. The model is used to measure the Group’s risk position and related capital requirements as well as for defining the risk tolerance, risk limits, and liquidity stress tests.
̤ Credit risk decreased by 3% to USD 3.3 billion; an important driver of the change was the minority investment of MS&AD into ReAssure.
Property & Casualty 9.4 9.8 5 see page 84 Life & Health 7.4 7.7 4 see page 85 Financial market 12.3 11.9 –3 see page 86 Credit1 3.4 3.3 –3 see page 87
Based on the internal risk model, our overall risk in terms of 99% tail value at risk (tail VaR) remained broadly stable at USD 19.7 billion in 2017 (compared to USD 19.5 billion at the end of 2016).
Alternative risk measurements — 99% and 99.5% VaR — remained stable at USD 14.6 billion and USD 17.4 billion, respectively.
̤ Life and Health (L&H) insurance risk arises from coverage provided for mortality (death), longevity (annuity) and morbidity (illness and disability) as well as from acquiring closed books of business. In addition to potential shock events (such as a severe pandemic), it includes underlying risks inherent in life and health contracts that arise when mortality, morbidity, or lapse experience deviates from expectations.
̤ Regulatory risk arises from changes to insurance regulations and supervisory regimes as well as from interactions with regulatory authorities and supervisory regimes of the jurisdictions in which Swiss Re operates.
̤ Sustainability risk comprises the environmental, social and ethical risks that may arise from individual business transactions or the way Swiss Re conducts its operations.
Property and casualty risk Change from 2016 99% tail VaR: +5%
Insurance risk management involves identifying, assessing and controlling risks that Swiss Re takes through its underwriting activities, including related risks such as inflation or uncertainty in pricing and reserving.
Risk Management also provides independent assurance throughout the business cycle, starting with the annual business planning process. It reviews underwriting standards, costing models and large transactions, and monitors exposures, reserves and limits. Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments.
Developments in 2017 Property and casualty risk, net of retrocession and securitisation, grew by 5% to USD 9.8 billion. This increase was mainly driven by the strengthening of major currencies against the US dollar as well as higher property reserves following the major natural catastrophes in the second half of 2017.
The 200-year event losses from major natural catastrophe scenarios, net of retrocession and securitisation, are shown on page 85.
The Atlantic hurricane and Californian earthquake scenarios decreased by 10% and 5%, respectively, reflecting the reduction in exposures mentioned above. The European windstorm scenario remained broadly stable as the reduction in exposure was largely offset by the strengthening of the euro against the US dollar. The Japanese earthquake scenario also remained stable.
Large transactions that could materially impact the risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they are authorised. This is part of a threesignature principle, under which key transactions must be approved by
Developments in 2017 Overall life and health risk increased by 4% to USD 7.7 billion, driven mainly by the strengthening of major currencies against the US dollar as well as lower interest rates.
In addition, higher lethal pandemic and critical illness exposure contributed to the increase. The growth was driven in part by new business written in Europe and Asia, particularly in China.
The 200-year lethal pandemic event shown in the table above rose by 15%. The increase is in line with the increase in lethal pandemic tail VaR and is driven by the strengthening of major currencies against the US dollar as well as by the higher exposure mentioned above.
Management The CROs of SRZ, SRLC and their subsidiaries are responsible for overseeing all life and health exposures written in their respective areas. Accumulated exposures across Swiss Re are monitored and controlled by Group Risk Management to ensure that they remain at an acceptable level for the Group.
Pre-tax impact on economic capital in USD billions, as of 31 December 2016 2017 Change in %
All activities with financial market and credit risk are subject to limits at various levels of the organisation (eg Group, lines of business and legal entities). At the highest level, the Group Board of Directors sets a financial risk concentration limit which defines how much of the Group’s risk exposure can derive from financial risk. As part of the business planning process, the Group Executive Committee establishes limits for aggregate financial market and credit risk at Group level as well as for major legal entities, with additional limits set for individual risk factors, business lines, portfolio managers, corporate counterparty and country. Risk limits may be expressed in terms of losses in a stress scenario, value at risk based on historic market moves, linear sensitivities to a particular risk factor or different methodologies of exposure aggregation.
Developments in 2017 In terms of tail VaR, overall financial market risk decreased by 3% to USD 11.9 billion. The reduction was primarily driven by lower credit spread risk, which decreased due to the minority investment of MS&AD into ReAssure; to a lesser extent the decrease is also due to a simplified aggregation methodology for bond portfolios and lower risk factor volatilities. These effects were partly offset by the strengthening of the British pound and additional government bond and credit investments.
The reporting process is complemented by regular risk discussions between Financial Risk Management, Asset Management and the Group’s external investment managers, as well as by regular interactions with other key units that take financial market risk, such as Principal Investments and Acquisitions, Treasury, and the respective business teams that write transactions.
Developments in 2017 In 2017, Swiss Re’s credit risk – which includes default and migration (deterioration in credit rating) risk – decreased slightly to USD 3.3 billion.
The main driver for the decrease in credit risk was lower exposure as a result of the minority investment of MS&AD into ReAssure as well as due to the implementation of counterparty default hedges.
Market scenarios 100bp increase in credit spreads –4.4 –4.4 0 30% fall in equity markets (incl. hedge funds) –2.5 –2.7 8 15% fall in real estate markets –0.7 –0.7 11 100bp parallel increase in global yield curves –0.1 –0.1 –20
To take account of country risks other than from credit default, the Group’s Political Risk Management team prepares specific country ratings in addition to the sovereign ratings used by Swiss Re. These ratings are considered in the decision-making process and cover political, economic and security-related country risks.
Operational risk Risk Management is responsible for monitoring and controlling operational risks based on a centrally coordinated methodology. Members of the Group Executive Committee are required to certify the effectiveness of the internal control system for their respective area of responsibility on a quarterly basis.
As part of their independent oversight role, Risk Management, Compliance and Group Internal Audit are responsible for controlling the risk-taking arising from the implementation of the strategy.
While prudential regulation in most regions is developing towards more risk-sensitive and economic-based capital regimes, regulatory fragmentation is increasing. Regulators show declining appetite for globally aligned policy reforms. Local capitalisation rules often fail to fully recognise the benefits of risk mitigation and diversification. In addition, there are moves to limit the use of internal models influenced by post-crisis banking regulation. Swiss Re strongly supports the use of internal models, full recognition of risk mitigation and diversification, appropriate consideration of counterparty default and concentration risk, and efficient application of eligible capital instruments. Uncoordinated regulatory approaches will be less effective in promoting financial stability and could undermine re/insurers’ ability to support economic activity and closing the protection gap.
Growing national protectionism restricts the free flow of risk and capital. Swiss Re is advocating for the removal or reduction of market access barriers, so that policyholders, governments, taxpayers and national economies can fully benefit from international diversification and therefore reliable, quality and affordable risk cover.
The timing and consequences of the Brexit are not clear yet and depend on the outcome of the negotiations between the EU and the UK. Swiss Re operates in the UK through branches of our Luxembourg entities and some UK-domiciled entities. We are thus closely monitoring developments and are actively engaging with the relevant UK and EEA regulators in defining and aligning our Brexit contingency plans.
Model risk Swiss Re uses models throughout its business processes and operations, in particular to price insurance products, value financial assets and liabilities, assess reserves and portfolio cash flows, and estimate risk and capital requirements. Model owners have primary responsibility for model-related risks and are required to adhere to a robust tool development process, including testing, peer review, documentation and sign-off. A similar process also applies to model maintenance.
Valuation risk Financial valuation risk is managed by a dedicated team within Financial Risk Management. The team performs independent price verification for financial risk positions to confirm that valuations are reasonable and ensure there are no material misstatements of fair value in Swiss Re’s financial reports. The results of the independent price verification process are reviewed by the Asset Valuation Committee. Summary results are regularly reported to executive management and the Board at Group and legal entity level. In addition, Swiss Re’s external auditor conducts quarterly reviews as well as a comprehensive year-end audit of controls, methodology and results.
Reserve valuation risk is managed by Swiss Re’s Actuarial Control function, with dedicated teams for property and casualty, and life and health valuation. These teams ensure that Swiss Re’s reserve setting process uses an appropriate governance framework, including defined accountabilities and decision-making processes for risk takers (as the first line of control) as well as for Actuarial Control. The framework ensures that there is independent assurance on the data, assumptions, models and processes used for valuation purposes; for all property and casualty business and selected life and health portfolios, it also includes an independent valuation of coverage provided to ensure that reserves are within an adequate range. Regular deep-dive investigations are performed into selected portfolios in order to review the appropriateness of both the reserves and the applied reserving approach.
Swiss Re is a founding signatory to the UN Principles for Sustainable Insurance (UN PSI) and is currently a board member of this initiative. The UN PSI provide a global framework for managing environmental, social and governance challenges. Swiss Re has been actively contributing to the initiative for several years, co-chaired it from 2013 to 2015 and publicly reports progress against the principles in its annual Corporate Responsibility Report; the 2017 edition has been published together with the 2017 Financial Report.
Overview 94 Group structure and shareholders 98 Capital structure 101 Board of Directors 104 Executive Management 122 Shareholders’ participation rights 130 Changes of control and defence measures 131 Auditors 132 Information policy 134
“ The Board of Directors forms Swiss Re’s corporate governance to support Swiss Re’s positive contribution to society.”
Corporate governance developments and trends are changing rapidly and are based on enhanced regulation and evolving political parameters representing a comprehensive topic for the Board of Directors to deal with. A company’s corporate governance does not only need to incorporate legal and regulatory requirements but also has to respond to increasing stakeholder expectations. Measuring a company’s corporate governance based on environmental, social and governance (ESG) criteria gains in importance. The Board of Directors regularly assesses Swiss Re’s corporate governance against regulatory developments, relevant best practice standards and new stakeholder demands. The Board of Directors closely monitors Swiss and global corporate governance developments and considers relevant studies and surveys. The Board of Directors adapts Swiss Re’s corporate governance where it deems it appropriate and beneficial for Swiss Re, its shareholders and further stakeholders. The Board of Directors values feedback on Swiss Re’s corporate governance by its stakeholders and engages in a dialogue with its shareholders, proxy advisors and corporate governance consulting firms.
The Board of Directors ensures that Swiss Re’s corporate governance takes into account all mentioned aspects and that the company’s corporate governance is ready to respond to upcoming needs.
Swiss Re’s corporate governance framework Swiss Re Ltd’s Board of Directors is responsible for oversight, while the Group EC is responsible for managing operations. This structure maintains effective mutual checks and balances between these top corporate bodies. Our corporate governance principles and procedures are defined in several documents governing the oversight, organisation and management of the company. These include at the Group level: ̤ the Group Code of Conduct, outlining our compliance framework and setting out the basic ethical and legal principles and policies we apply globally; ̤ the Corporate Governance Guidelines (Guidelines), setting forth the Group’s governance framework, principles, processes and requirements, ensuring consistent and fitted corporate governance across the Group; ̤ the Articles of Association of Swiss Re Ltd (SRL), defining the legal and organisational framework of the Group’s holding company SRL, (available at www.swissre.com/ about_us/corporate_governance/ corporate_regulations.html); ̤ the SRL Bylaws, defining the governance framework of SRL and the Group including the responsibilities and authorities of the Board of Directors, Chairman, Vice Chairman, Lead Independent Director, Board committees, Group EC, Group CEO and other individual Group EC members including the Regional Presidents, as well as the relevant reporting procedures; and
Board of Directors educational sessions and trainings In line with the Board of Directors’ aim to constantly broaden its know-how on important business and new emerging topics, the Board of Directors held several educational sessions and trainings in 2017. The following topics were among the ones discussed: Overview
̤ P&C Reserving The Board members deepened their know-how on Swiss Re’s reserving (methodology, strength as well as uncertainties) and the link between P&C reserving and MRB. The Board members also got insights on recent feedback on Swiss Re’s reserving provided by analysts and investors.
Composition ̤ Jay Ralph, Joerg Reinhardt and Jacques de Vaucleroy were elected as new members to the Board of Directors by the shareholders at the Annual General Meeting which took place in Zurich on 21 April 2017.
̤ The Board of Directors nominated Karen Gavan, Eileen Rominger and Larry Zimpleman to be proposed to the Annual General Meeting 2018 for election as new members of the Board of Directors, whereas Mary Francis, Rajna Gibson Brandon and C. Robert Henrikson will not stand for re-election.
Officer and a member of the Group EC as of 1 July 2017, succeeding Matthias Weber who has decided to step down as Group Chief Underwriting Officer.
Cyber awareness In the evolving cyber threat landscape Swiss Re must remain vigilant, agile and responsive to new cyber attack vectors. ̤ Swiss Re’s cyber threats are no different to other players in the industry: Swiss Re has to defend its client data, business and employees against a wide range of internal and external threat actors, including cyber criminals or nation sponsored attackers conducting espionage.
̤ Cyber Security has become a strategic capability in Swiss Re’s Digital Information & Technology Strategy.
̤ Swiss Re’s crisis and incident management and escalation process spans across all operational and management levels, including the Board of Directors.
̤ In the year under review the Board of Directors was provided with a major cyber crisis walk through to increase its cyber incident awareness and readiness.
Shareholder dialogue Swiss Re welcomes the dialogue with its shareholders. Swiss Re is of the opinion that it is part of good corporate governance to have procedures in place addressing shareholder queries. Accordingly, Swiss Re has reviewed those procedures in 2017.
Legal structure — listed and non-listed Group companies Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the International Reporting Standard on the SIX Swiss Exchange (ISIN CH0126881561), domiciled at Mythenquai 50/60 in 8022 Zurich, and organised under the laws of Switzerland.
Information on its market capitalisation is provided on page 51 of this Financial Report. No other Group companies have shares listed. More information on the
Swiss Re Ltd has a level I American Depositary Receipts (ADRs) programme in the US. The ADRs are traded over the counter (OTC) (ISIN US8708861088, OTC symbol SSREY). One Swiss Re Ltd share equals four ADRs. Neither the ADRs, nor the underlying Swiss Re Ltd shares are listed on a securities exchange in the US. Shares or other Deposited Securities represented by ADRs for which no specific voting instructions are received by the depositary from the holder shall not be voted.
Significant shareholders and shareholder structure Under the Financial Markets Infrastructure Act (FMIA), anyone holding shares in a company listed on the SIX Swiss Exchange is required to notify the company and the SIX Swiss Exchange if its direct or indirect holding reaches, falls below or exceeds the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% or 66⅔% of the voting rights pursuant to the entry into the
commercial register, whether or not the voting rights can be exercised.* Notifications must also include financial instruments, regardless of whether cash or physically settled, constituting a purchase or a sale position. Upon receipt of such notifications, the company is required to inform the public by publishing within two trading days the notification on the electronic platform of the SIX Swiss Exchange.
Shares held by Swiss Re 28 519 016 8.2 Share buy-back programme 6 347 500 1.8 1 Without Swiss Re’s holdings.
as of 31 December 2017 66.8% Institutional shareholders 28.8% Individual shareholders 4.4% Swiss Re employees as of 31 December 2017 56.3% Switzerland 17.0% United Kingdom 13.4% USA 13.3% Other registered shareholders
Capital As a result of the cancellation of shares repurchased under the share buy-back programme which was completed on 9 February 2017, the fully paid-in share capital of Swiss Re Ltd as of 31 December 2017 amounted to CHF 34 945 228.10. It is divided into 349 452 281 registered shares, each with a par value of CHF 0.10.
The table on page 102 of this Financial Report provides an overview of the issued, conditional and authorised capital of Swiss Re Ltd as of 31 December 2017 and 31 December 2016, respectively.
Conditional and authorised capital in particular Conditional capital As of 31 December 2017, the conditional capital of Swiss Re Ltd consisted of the following: Conditional capital for Equity-Linked Financing Instruments The share capital of the company may be increased up to CHF 5 000 000 by issuing a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10.
Existing shareholders’ subscription rights are excluded. The then current holders of the conversion and/or option rights granted in connection with Equity-Linked Financing Instruments shall be entitled to subscribe for the new registered shares. Subject to the Articles of Association, the Board of Directors may decide to restrict or exclude existing shareholders’ advance subscription rights with regard to these Equity-Linked Financing Instruments. Such a decision may be made in order to issue EquityLinked Financing Instruments on national and/or international capital markets or by way of private placements in connection with (i) mergers, acquisitions (including takeover) of companies, parts of companies, equity stakes (participations) or new investments planned by the company and/or Group companies, financing or refinancing of such mergers, acquisitions or new investments, or (ii) improving the regulatory capital position of the company or Group companies.
Authorised capital As of 31 December 2017, the authorised capital of Swiss Re Ltd was as presented in the table on page 102.
On 21 April 2017 the Annual General Meeting authorised the Board of Directors to repurchase up to a maximum of CHF 1 billion purchase value of Swiss Re Ltd’s own shares prior to the
Annual General Meeting 2018 by way of a buy-back programme for cancellation purposes. The programme was launched on 3 November 2017 and completed on 16 February 2018. The purchase value of the repurchased own shares corresponded to CHF 999 999 975.78.
Changes in 2016 The Annual General Meeting 2016 approved the reduction of the ordinary share capital by CHF 1 063 437.00 from CHF 37 070 693.10 to CHF 36 007 256.10 via the cancellation of 10 634 370 shares with a nominal value of CHF 0.10 repurchased by Swiss Re Ltd on a second trading line on the SIX Swiss Exchange, via UBS AG as agent. The 10 634 370 shares were repurchased under the share buy-back programme lasting from 12 November 2015 until 2 March 2016. The purchase value of the repurchased own shares corresponded to CHF 999 999 867.20.
The reduction of the ordinary share capital could only take place after the required three notices to creditors had been published in the Swiss Gazette of Commerce (Schweizerisches Handelsamtsblatt) as stipulated in Art. 733 of the Swiss Code of Obligations. The reduction of the ordinary share capital approved by the Annual General Meeting on 22 April 2016 was published in the Swiss Gazette of Commerce on 14 July 2016.
Changes in 2015 The Annual General Meeting 2015 approved that the authority to issue registered shares from authorised capital as set forth in the Articles of Association be extended to 21 April 2017 and that the limitation included in the Articles of Association to issue registered shares from authorised capital where the existing shareholders’ subscription rights are excluded be extended to 21 April 2017.
Each shareholder may, however, at any time request a written confirmation from the company of the registered shares held by such shareholder, as reflected in the company’s share register.
Persons acquiring registered shares will, upon application, be entered in the share register without limitation as shareholders with voting power if evidence of the acquisition of the shares is provided and if they expressly declare that they have acquired the shares in their own name and for their own account and, where applicable, that they are compliant with the disclosure requirement stipulated by the Financial Markets Infrastructure Act (FMIA) of 19 June 2015. The Board of Directors is allowed to remove the entry of a shareholder with voting rights from the share register retroactively from the date of entry if the entry was obtained under false pretences or if the owner, whether acting alone or as part of a group, has breached notification rules.
Convertible bonds and options Convertible bonds As of 31 December 2017, neither Swiss Re Ltd nor any of its subsidiaries has any bonds outstanding that are convertible into equity securities of Swiss Re Ltd solely at the option of bondholders. The same applied as of 31 December 2016 and 31 December 2015.
In 2012, Swiss Reinsurance Company Ltd issued USD 750 000 000 of 8.25% perpetual subordinated capital instruments with stock settlement, which provide Swiss Reinsurance Company Ltd with options to initiate settlement of the subordinated securities by delivery of shares of Swiss Re Ltd. In 2012, Swiss Reinsurance Company Ltd had also issued CHF 320 000 000 of 7.25% perpetual subordinated notes which it redeemed in 2017.
Options Valid exercise of stock options granted to Swiss Re employees are either cash or physically settled (with treasury shares). The number of issued shares will not be affected. For details on stock options granted to Swiss Re employees, see Note 15 to the Group financial statements on pages 276–277 of the Financial Report 2017.
According to the Articles of Association, the Board of Directors of Swiss Re Ltd, the holding company of the Swiss Re Group, consists of at least seven members. As of 31 December 2017 the Board of Directors consisted of the following members: Name Nationality Age Initial election
C. Robert Henrikson American 70 2012 Trevor Manuel South African 61 2015 Jay Ralph American, Swiss 58 2017 Joerg Reinhardt German 61 2017 Philip K. Ryan American 61 2015 Sir Paul Tucker British 59 2016 Jacques de Vaucleroy Belgian 56 2017 Susan L. Wagner American 56 2014 1 Initially elected to the Board of Directors of Swiss Reinsurance Company Ltd, the Group’s former parent company, and subsequently elected to the Board of Directors of Swiss Re Ltd in 2011.
Walter B. Kielholz was elected to the Board of Directors of Swiss Reinsurance Company Ltd in 1998 and to the Board of Directors of Swiss Re Ltd in connection with its formation in 2011. He was Vice Chairman from 2003 to April 2009 and has been Chairman of the Board of Directors since May 2009. He chairs the Chairman’s and Governance Committee.
Professional experience Walter B. Kielholz began his career at the General Reinsurance Corporation, Zurich, in 1976, where he held several positions in the US, the UK and Italy before assuming responsibility for the company’s European marketing. In 1986, he joined Credit Suisse, where he was responsible for relationships with large insurance groups. He joined Swiss Re in 1989 where he became an Executive Board member in 1993 and was Chief Executive Officer from 1997 to 2002. He was also a member of the Board of Directors of Credit Suisse Group Ltd from 1999 to 2014 and served as Chairman from 2003 to 2009.
Raymond K.F. Ch’ien was elected to the Board of Directors of Swiss Reinsurance Company Ltd in 2008 and to the Board of Directors of Swiss Re Ltd in connection with its formation in 2011. He is a member of the Compensation Committee and the Investment Committee. He is also a member of the Board of Directors of Swiss Re Asia Pte. Ltd.
Power Holdings Company Ltd and the Hongkong and Shanghai Banking Corporation Ltd
Mary Francis was elected to the Board of Directors of Swiss Re Ltd in 2013. She is a member of the Audit Committee and the Finance and Risk Committee.
Professional experience Mary Francis held a number of senior positions in the UK Treasury and Cabinet Office, including Financial Counsellor in the British Embassy in Washington DC, Private Secretary to the Prime Minister (John Major) and Deputy Private Secretary to the Queen. Between 1999 and 2005 she was Director General of the Association of British Insurers. She is a former non-executive Director of the Bank of England and Aviva plc, and was Senior Independent Director of the British energy company Centrica plc from 2006 to 2014.
Professional experience Rajna Gibson Brandon is a Professor of Finance at the University of Geneva, Director and Member of the Foundation Board of the Geneva Institute for Wealth Management and Deputy Director of the Geneva Finance Research Institute. She held professorships at the University of Lausanne from 1991 to 2000 and the University of Zurich from 2000 to 2008. She was a member of the Swiss Federal Banking Commission from 1997 to 2004.
̤ Member of the Board of the Foundation Natixis for Quantitative Research
Professional experience C. Robert Henrikson was Chairman and Chief Executive Officer of MetLife, Inc. from 2006 to 2011. Before, he held senior positions in MetLife’s individual, group and pension businesses and became Chief Operating Officer of the company in 2004. C. Robert Henrikson is a former Chairman of the American Council of Life Insurers and of the Financial Services Forum, Director Emeritus of the American Benefits Council and a former member of the U.S. President’s Export Council.
Trevor Manuel was elected to the Board of Directors of Swiss Re Ltd in 2015. He is a member of the Audit Committee and the Investment Committee.
Jay Ralph Member, non-executive and independent Born: 1959 Nationality: American and Swiss
Professional experience Jay Ralph was a member of the Board of Management of Allianz SE from 2010 to 2016, where he also served on a number of boards of directors of Allianz SE subsidiaries. He was Chief Executive Officer of Allianz Re from 2007 to 2009 and President and Chief Executive Officer of Allianz Risk Transfer from 1997 to 2006. Before joining Allianz, he was auditor at Arthur Andersen & Company, Investment Officer at Northwestern Mutual Life Insurance Company, President at Centre Re Bermuda Ltd and a member of the Executive Board of Zurich Re.
Joerg Reinhard was elected to the Board of Directors of Swiss Re Ltd in 2017. He is a member of the Compensation Committee.
Professional experience Joerg Reinhardt has been Chairman of the Board of Directors of Novartis since 2013. He was Chairman of the Board of Management and the Executive Committee of Bayer Health Care from 2010 to 2013 and, prior to that, held various executive positions at Novartis. He was Chief Operating Officer from 2008 to 2010, headed the Vaccines and Diagnostics Division from 2006 to 2008 and held a number of other senior roles, primarily in research and development, in the preceding years. Joerg Reinhardt started his career at Sandoz Pharma Ltd, a predecessor company of Novarits, in 1982.
Professional experience Philip K. Ryan held various positions with Credit Suisse from 1985 to 2008, including Chairman of the Financial Institutions Group, Chief Financial Officer of Credit Suisse Group Ltd, Chief Financial Officer of Credit Suisse Asset Management, and Managing Director of CSFB Financial Institutions Group. He was Chief Financial Officer of the Power Corporation of Canada from 2008 to 2012. In that capacity, he was a director of IGM Financial Inc., Great-West Lifeco Inc. and several of their subsidiaries, including Putnam Investments.
Professional experience Sir Paul Tucker was the Deputy Governor of the Bank of England from 2009 to 2013. He held various senior roles at the Bank of England from 1980 onwards, including as a member of the Monetary Policy Committee, Financial Policy Committee, Prudential Regulatory Authority Board and Court of Directors. He also served as a member of the Steering Committee of the G20 Financial Stability Board and as a member of the Board of the Bank for International Settlements. In 2014, he was granted a knighthood for his services to central banking.
Services Volunteers Corps ̤ Member of the Advisory Committee of Autonomous Research ̤ Senior Fellow at the Harvard Center for European Studies ̤ Governor of the Ditchley Foundation
Educational background ̤ Master in Law, Université Catholique de Louvain, Belgium ̤ Master in Business Law, Vrije
BlackRock, Inc. ̤ Member of the Board of Trustees of Wellesley College, USA
Conflicts of interest The members of the Board of Directors are also subject to procedures to avoid any action, position or interest that conflicts with an interest of Swiss Re Ltd or the Swiss Re Group or gives the appearance of a conflict. Each member must disclose any conflict of interest relating to a matter to be discussed at a meeting, as soon as the member becomes aware of the conflict, to the Chairman. The respective member must not participate in the discussion and decision-making involving the interest at stake. The Chairman informs the Board of Directors of the existence of the conflict and it is reflected in the meeting minutes. Each member must disclose any conflict of interest generally arising to the Group Chief Legal Officer (Group CLO), or in his absence to the Group Chief Compliance Officer (Group CCO), in line with the standards and procedures set forth by the Personal Conflicts of Interest Instructions. The Group CLO (or in his absence the Group CCO) ensures that such reported conflict of interest is dealt with according to these standards and procedures.
The Board of Directors ensures that in any event the number of external mandates held by members of the Board of Directors does not conflict with their
Succession planning Succession planning is of high relevance to the Board of Directors. It regularly analyses its composition to confirm that its members’ qualifications, skills and experience correspond to the Board’s needs and requirements. The Board of Directors initiates the evaluation of potential new Board members timely with the continued aim to obtain among its members the desired qualifications and experience as well as to further diversify and renew its composition. The Chairman’s and Governance Committee evaluates candidates for Board membership and makes recommendations to the Board of Directors for election or re-election proposals. The Board of Directors nominates candidates for Board membership for election at the General Meeting of shareholders, ensuring that the Board retains an adequate size and well-balanced composition and that at least three-quarters of its members are independent. With regard to its succession planning, the Board of Directors aims to safeguard the stability of its composition while also renewing the Board in a sensible way.
The prevalence of these qualifications and skills ensures that Swiss Re Ltd has the relevant expertise required for active involvement and supervision of an international listed company.
Board diversity The principles of gender and age diversity, inclusion, nationality, regional representation, transparency and the avoidance of conflicts of interest also play an important role in the nomination process.
Board members’ training The Board of Directors has a unique role in the company oversight. The company therefore strives on building a strong and effective Board culture, supported by ongoing learning, which is an important component to foster board effectiveness. Newly elected Board members receive a comprehensive onboarding programme consisting of a total of 21 hours of sessions in order to gain a sound understanding of the Group’s organisation, business and its environment. Additionally, the Board members update and enhance their knowledge of emerging business trends and risks through regular meetings with internal and external experts throughout the year. One-to-one educational sessions are offered any time through the year with our top executives and experts. Please also see the 2017 key focus areas and highlights 2017/2018 on pages 96-97 for more details on education and trainings the Board members completed in the reporting year.
The term of office of the committee members is described in the section on the committees of the Board of Directors.
First election date The initial election year of each member is stated in the table on page 104.
Furthermore, the Board of Directors proposes: ̤ Karen Gavan ̤ Eileen Rominger ̤ Larry Zimpleman to the Annual General Meeting 2018 for first-time election as members of the Board of Directors for a one-year term of office.
Karen Gavan started her career in finance roles at Prudential Insurance, Imperial Life and Canada Life. Afterwards, at Transamerica Life Canada/AEGON Canada, Karen Gavan worked as Chief Financial Officer and then Chief Operating Officer. Until her retirement in November 2016, she served for five years as Chief Executive Officer at Economical Insurance, one of Canada’s leading property and casualty insurance companies, preparing the company for its initial public offering.
Karen Gavan is a Canadian citizen born in 1961. She graduated with a Honours Bachelor of Commerce from the Lakehead University, Canada. She is a Fellow at the Institute of Chartered Accountants of Ontario, Canada.
Eileen Rominger began her career at Oppenheimer Capital, where she worked for 18 years as an equity portfolio manager, serving as a Managing Director and a member of the Executive Committee. Eileen Rominger then joined Goldman Sachs Asset Management in 1999, where she held a number of senior leadership positions, becoming the company’s Global Chief Investment Officer. She subsequently served from 2011 to 2012 as the Director of the Division of Investment Management at the United States Securities and Exchange Commission, where she was instrumental in
Corporate Governance Board of Directors formulating and implementing regulatory policy for mutual funds and federally registered investment advisors.
Larry Zimpleman started his career in 1971 as actuarial intern at The Principal Financial Group, an investment management company that offers insurance solutions, asset management and retirement services to individual and institutional clients. From 1976 to 2006 he held various senior management and leadership positions at The Principal. He became President and Chief Executive Officer in 2008 and Chairman in 2009. In August 2015, Larry Zimpleman stepped down as President and CEO and retired as a full-time employee in 2016 after a long, successful career, while continuing to serve as non-executive Chairman.
Larry Zimpleman is a US citizen born in 1951. He graduated with a Bachelor of Science from the Drake University, USA, and holds an MBA from the same university.
Organisational structure of the Board of Directors The Board of Directors constitutes itself at the first meeting following the Annual General Meeting of shareholders. With the exception of the Chairman and the members of the Compensation Committee who are elected at the Annual General Meeting of shareholders, the Board of Directors elects among its independent members a Vice Chairman and a Lead Independent Director. The same member may act in both roles. The Board of Directors also elects the Chairpersons and members of the Board Committees as proposed by the Chairman’s and Governance Committee. The Board of Directors may remove the members from any such special function at any time. The Board of Directors also appoints its secretaries who do not need to be members of the Board.
If the office of the Chairman is vacant, the Board of Directors may appoint a new Chairman from among its members for the remaining term of office. Such a resolution requires both the presence of all remaining members of the Board of Directors, physically or by telephone or video conference, and a majority of at least three-quarters.
Committees of the Board of Directors As determined by applicable 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 which support the Board in fulfilling its duties. The Board of Directors has delegated certain responsibilities, including the preparation and execution of its resolutions, to the following five committees: the Chairman’s and Governance Committee, the Audit Committee, the Compensation Committee, the Finance and Risk Committee and the Investment Committee (see page 111).
Each committee consists of a chairperson and at least three other members elected from among the Board of Directors. The members of the Compensation Committee are annually elected by the Annual General Meeting of shareholders.
The term of office of a Board committee member is one year, beginning with the appointment at the constituting Board meeting following an Annual General Meeting of shareholders and ending at the Board meeting following the subsequent Annual General Meeting of shareholders. For the Compensation Committee members the term of office begins with the election at the Annual General Meeting of shareholders until completion of the next Annual General Meeting of shareholders.
Each committee is governed by a Charter which defines the committee’s responsibilities. The committees operate in line with the SRL Bylaws and according to their respective Charters.
Walter B. Kielholz X (chair) Renato Fassbind X X (chair) X Raymond K.F. Ch’ien X X Mary Francis X X Rajna Gibson Brandon X X C. Robert Henrikson X X (chair) X Trevor Manuel X X Jay Ralph X Joerg Reinhardt X Philip K. Ryan X X X (chair) Sir Paul Tucker X X Jacques de Vaucleroy X Susan L. Wagner X X X (chair)
Audit Committee Responsibilities The central task of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities as they relate to the integrity of Swiss Re’s and the Group’s financial statements, the Swiss Re Group’s compliance with legal and regulatory requirements, the external auditor’s qualifications and independence, and the performance of Group Internal Audit (GIA) and the Group’s external auditor. The Audit Committee monitors independently and objectively Swiss Re’s and the Group’s financial reporting process and system of internal control, and facilitates ongoing communication between the external auditor, Group EC, Business Units, GIA, and the Board with regard to the Swiss Re Group’s financial situation.
Members ̤ Renato Fassbind, Chair ̤ Mary Francis ̤ Trevor Manuel ̤ Philip K. Ryan
Independence and other qualifications All members of the Audit Committee are non-executive and independent. In addition to the independence criteria applicable to Board members in general, additional independence criteria apply to members of the Audit Committee. They are required to possess such additional attributes as the Board of Directors may, from time to time, specify. Each member of the Audit Committee has to be financially literate. At least one member must qualify as an Audit Committee financial expert, as determined appropriate by the Board of Directors. Members of the Audit Committee should not serve on audit committees of more than four listed companies outside the Swiss Re Group. Audit Committee members have to advise the Chairman of Swiss Re Ltd before accepting any further invitation to serve on an audit committee of another listed company outside the Group and observe the limitations set in the Articles of Association in relation to external mandates (see other mandates, activities and functions on page 109).
Members ̤ Susan L. Wagner, Chair ̤ Raymond K.F. Ch’ien ̤ Rajna Gibson Brandon ̤ Trevor Manuel ̤ Sir Paul Tucker ̤ Jacques de Vaucleroy
Audit Committee 8 meetings Group CEO, Group CFO, Group CRO, Group COO, Group CLO, Chief Compliance Officer, Head Group Internal Audit, Chief Accounting Officer, lead auditors of external auditor, Company Secretary 3 hours
Finance and Risk Committee 6 meetings Group CEO, Group CFO, Group CRO, Group CSO, Group CUO, Group CIO,
Group CEO, Group CFO, Group CRO, Group CSO, Group CIO, Head Financial Risk Management, CFO Asset Management, Group Treasurer, Company Secretary
75–79.9 1 1 The attendance rate for the Board members was calculated relative to the meetings taking place during their term of office. 2 Includes members who stepped down from the Board of Directors during the year.
Work methods of the Board of Directors and its committees Convening meetings and invitation Swiss Re Ltd’s Board of Directors oversees governance, audit, compensation, finance and risk and investment and is supported in this responsibility by its committees. The entire Board of Directors and its committees meet at the invitation of the Chairman of the Board of Directors as often as business requires or at least quarterly. Any member of the Board of Directors or the Group EC may, for a specific reason, require the Chairman to call an extraordinary Board of Directors or committee meeting. The members of the Board of Directors ensure that they are able to fulfil the responsibilities of their position even in periods when there are increased demands on their time. The Chairman defines the agenda for each meeting and therefore works closely with the chairpersons of the committees and the Group CEO. The agenda, along with any supporting documents, is delivered to the participants, as a rule, at least ten calendar days in advance of a meeting in order to allow enough preparation time. The Chairman may determine a Board of Directors meeting be held on an ad hoc basis, if circumstances require.
Resolutions are adopted by majority vote. In the event of a tie at Board meetings, the Chairman’s vote is decisive. In the event of a tie at Board committee meetings, the item shall be submitted to a vote by the entire Board of Directors.
̤ approves all matters where such decisions exceed the authorities delegated to the Board committees, the Group CEO, the Group EC and individual Group EC members and overrules decisions if necessary.
̤ regulates the compensation framework of the Swiss Re Group; approves the Group variable compensation pool; proposes the Board of Directors and Group EC compensation to the General Meeting of shareholders for approval.
General Meetings of shareholders ̤ convenes General Meetings of shareholders and decides on proposals to be brought forward to the shareholders; and
Under the leadership of the Group CEO, the Group EC has management responsibility for matters concerning Swiss Re Ltd as a legal entity. Additionally, the Group EC has management and functional responsibility for the Swiss Re Group’s matters. It supports the Board of Directors in its decision-making process and prepares any proposals for the Board of Directors in the Group EC’s area of responsibility. In particular with respect to the below topics, it: Governance ̤ has overall responsibility for managing operations, subject to delegation by the Board of Directors; and
The Group EC discharges its responsibilities as a joint body, except for responsibilities delegated to the Group CEO and further individual Group EC members as outlined in the SRL Bylaws.
Board supervision of executive management Swiss Re Ltd’s Board of Directors maintains effective and consistent oversight and monitors the execution of responsibilities it has delegated to executive management through the following control and information instruments.
Participation of Board members at executive management meetings The Chairman is invited to all meetings of the Group EC and Business Unit Executive Committees and receives the corresponding documentation and minutes.
The presence of the entire Group EC was required for four Board meetings in 2017, and selected members were invited to eight further Board meetings. The overall attendance rate for the Group EC members was 95.4%.
Involvement of executive management in Board committee meetings As a matter of principle, selected members of the Group EC as well as further senior management members participate at Board committee meetings as advisors. The Charter of the Board committees specifies management participation at committee meetings.
A detailed summary of executive management participation in Board committee meetings is provided on page 115.
Benchmarking of Swiss Re against selected peers The report provides an analysis of the performance of the Swiss Re Group compared to the performance of selected peers.
Any member of the Board of Directors may demand at Board meetings to obtain information on any aspect of the Group’s business. Outside Board meetings, any member can direct a request for production of information and business records to the Chairman.
Periodic reports to Board of Directors and its committees The executive management regularly provides the Board of Directors with different types of reports, in particular the following reports: Executive Report This comprehensive report gives an update on current business developments, covering the Group Functions and the Business Units, including major business transactions, claims, corporate development and key projects.
External auditor For information regarding the external auditors, please refer to page 132.
Thomas Wellauer Swiss 62 Group Chief Operating Officer 122 Swiss Re 2017 Financial Report
Professional experience Christian Mumenthaler started his career in 1997 as associate with the Boston Consulting Group. He joined Swiss Re in 1999 and was responsible for key company projects. In 2002, he established and headed the Group Retro and Syndication unit. Christian Mumenthaler served as Group Chief Risk Officer between 2005 and 2007 and was Head of Life & Health between 2007 and 2010. In January 2011, he was appointed Chief Marketing Officer Reinsurance and member of the Group Executive Committee, and became Chief Executive Officer Reinsurance that October. In July 2016 Christian Mumenthaler was appointed as Group Chief Executive Officer.
Association; of economiesuisse; of the Swiss American Chamber of Commerce; and of the Society for the Promotion of the Institute of Insurance Economics, St. Gallen
̤ Member of Insurance Europe’s Reinsurance Advisory Board; of the Pan-European Insurance Forum; of the IMD Foundation Board; of the Global Reinsurance Forum; of the Steering Board Insurance Development Forum; and of the Board of Trustees of the St. Gallen Foundation for International Studies
Professional experience John R. Dacey started his career in 1986 at the Federal Reserve Bank of New York. From 1990 to 1998, he was a consultant and subsequently Partner at McKinsey & Company. He joined Winterthur Insurance in 1998 and was its Chief Financial Officer from 2000 to 2004 as well as member of its Group Executive Board until 2007. From 2005 to 2007, he was Chief Strategy Officer and member of its risk and investment committees. He joined AXA in 2007 as Group Regional CEO and Group Vice Chairman for Asia-Pacific as well as member of their Group Executive Committee.
John R. Dacey joined Swiss Re in October 2012 and was appointed Group Chief Strategy Officer and member of the Group Executive Committee as of November 2012. He also served as Chairman Admin Re® from November 2012 to May 2015.
Professional experience Guido Fürer commenced his career at Swiss Bank Corporation/O’Connor & Associates in 1990. During the following seven-year period, he held leading positions in option trading and at its capital market division in Chicago, New York, London and Zurich.
Professional experience Agostino Galvagni joined Bavarian Re, a former Swiss Re subsidiary, in 1985 as a trainee in the fields of underwriting and marketing. He joined Swiss Re New Markets in New York in 1998. Agostino Galvagni returned to Bavarian Re in 1999 as a member of the Management Board.
In 2001, he joined Swiss Re in Zurich as Head of the Globals Business, and in 2005 he was appointed to the Executive Board to head the Globals & Large Risks Division within Client Markets. In 2009, Agostino Galvagni was appointed Chief Operating Officer and member of the Group Executive Committee. He was made Chief Executive Officer Corporate Solutions in October 2010.
Professional experience Thierry Léger started his career in the civil construction industry before joining Swiss Re as an engineering underwriter in 1997. In 2001 he moved to Swiss Re New Markets, providing non-traditional solutions to insurance clients. Between 2003 and 2005 he was a member of the executive team in France as leader of the sales team. From 2006 Thierry Léger assumed increasing responsibility for Swiss Re’s largest clients, ultimately becoming the Head of the newly-created Globals Division in 2010 and a member of the Group Management Board. In 2013, Thierry Léger became Head of L&H Products Reinsurance. As of January 2016 he was appointed Chief Executive Officer Life Capital and member of the Group Executive Committee.
Professional experience Jayne Plunkett started her career at John Deere Insurance Company in 1992, where she held various positions in the Commercial Lines segment in Property and Casualty. In 1999 she joined GE Insurance Solutions, where she served as Insurance Pricing Team Leader, Deputy Chief Reserving Actuary, Head of Casualty Risk Management, and Head of Planning and Analysis.
Professional experience Patrick Raaflaub began his career as an economist at Credit Suisse. He then was a founding member of a consulting start-up and research fellow at the University of St. Gallen. He joined Swiss Re in 1994 and was appointed Chief Financial Officer of Swiss Re Italia SpA in 1997, and then was Divisional Controller Americas Division from 2000. He worked as Head of Finance Zurich from 2003, then Regional Chief Financial Officer Europe and Asia from 2005. From 2006, he was Head of Group Capital Management, where he was responsible for capital management at Group level and global regulatory affairs. In 2008 he joined the Swiss Financial Markets Supervisory Authority FINMA as Chief Executive Officer.
Patrick Raaflaub returned to Swiss Re as Group Chief Risk Officer and member of the Group Executive Committee as of September 2014.
Professional experience J. Eric Smith worked in various roles in property and casualty insurance with Country Financial for more than 20 years, then joined Allstate in 2003, where he rose to the rank of President, Financial Services. He moved to USAA in 2010 as President USAA Life Insurance Co.
J. Eric Smith joined Swiss Re in July 2011 as Chief Executive Officer Reinsurance Americas and as a member of the Group Management Board. He was appointed Regional President Americas and member of the Group Executive Committee in January 2012.
Change in 2017 Edouard Schmid was appointed Group Chief Underwriting Officer and a member of the Group EC as of 1 July 2017, succeeding Matthias Weber who decided to step down as Group Chief Underwriting Officer.
Changes in 2018 John R. Dacey, Group Chief Strategy Officer, will become Group Chief Financial Officer as of 1 April 2018, succeeding David Cole who has decided to step down as Group Chief Financial Officer. With that change, the two roles of Group Chief Financial Officer and Group Chief Strategy Officer will be merged.
As of 1 April 2018, the Group EC will consist of 12 members, whereas it is composed of 13 members up to March 2018.
Any activities of members of the Group EC in governing and supervisory bodies of important Swiss and foreign organisations, institutions and foundations as well as permanent management and consultancy functions for important Swiss and foreign interest groups and official functions and political posts are stated in each of the Group EC members’ biographies on pages 123–127.
The Board of Directors has delegated the management of Swiss Re Ltd and the Swiss Re Group to the Group EC. Such delegated tasks are within the responsibility of the entire Group EC. For an overview of the Group EC’s key responsibilities, please see page 129.
The Group EC discharges its responsibilities as a joint body, except for responsibilities delegated to the Group CEO and further individual Group EC members as outlined in the SRL Bylaws. The next page provides an overview of the Group EC members’ individual key responsibilities.
Group Chief Financial Officer The Group CFO is responsible for the Group-wide Finance function with a focus on steering and achieving the company’s financial targets. He provides guidance to the Business Unit CFOs, and gives input on the financial aspects of strategic projects and transactions. The Group CFO provides the Audit Committee and Finance and Risk Committee with regular and ad hoc financial reporting that allow the committees to fulfil their respective authorities as per their Charters.
Group Functions and Business Units. He augments the Business Unit’s activities with targeted initiatives including direct investments and the Swiss Re Institute. He also systematically monitors and steers Group Strategy implementation.
Group Chief Underwriting Officer The Group CUO is responsible for steering capital to the most attractive areas in underwriting leading themes that are of strategic importance for the Swiss Re Group’s underwriting, and providing research and development that improves both capital allocation and risk selection.
Shareholders’ participation rights The General Meeting of shareholders passes its resolutions by an absolute majority, except where the law requires otherwise.
The Independent Proxy is elected by the General Meeting of shareholders for a term of office until completion of the next ordinary General Meeting of shareholders. The Independent Proxy whose term of office has expired is immediately eligible for re-election.
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.
Changes of control and defence measures The Board of Directors believes that Swiss Re Ltd’s best protection is a fair valuation of its shares.
In accordance with the Financial Markets Infrastructure Act (FMIA), whosoever acquires equity securities, which added to equity securities already owned exceed the threshold of 33⅓% of Swiss Re Ltd shares with voting rights, either directly, indirectly or in concert with third parties, and regardless of whether these rights are exercisable or not, triggers a mandatory takeover offer for the outstanding Swiss Re Ltd shares owned by all other shareholders.
Duration of the mandate and term of office of the lead auditors PricewaterhouseCoopers Ltd (PwC) was appointed as the external auditor of Swiss Re Ltd when the company was founded on 2 February 2011. PwC had been elected as the external auditor of the previous parent company of the Group, Swiss Reinsurance Company Ltd, at its Annual General Meeting 1991 and had been re-elected annually since then. The Annual General Meeting 2017, following the proposal of the Board of Directors based on the recommendation by the Audit Committee, re-elected
Fees (excluding value added taxes) for professional services provided by PwC in 2017 were as follows: Fees USD millions
Audit-related fees included an independent validation of Swiss Re’s internal risk model in preparation for FINMA’s approval process as well as assurance services required by Swiss Re’s regulators. Corporate finance fees related to the issuance of comfort letters for capital market transactions. Tax fees comprised advice and support on a number of tax assignments, and other non-audit fees included permitted advisory services related to various projects.
The external auditor provides the Audit Committee with regular updates on the audit work and related issues as well as with reports on topics requested by the Audit Committee.
We regularly communicate to the general public, the media and capital market players, informing our key stakeholders on our financial results, performance, strategy and activities, through meetings, road shows and news releases. We provide printed and online annual and half-year reports and other key quarterly financial information, as well as an annual Corporate Responsibility Report.
We regularly update our website, www.swissre.com, to provide our latest news and research, to circulate our publications, background discussion and analysis of issues relating to Swiss Re’s business and the broader re/insurance industry. We also publish a detailed financial calendar below and hold annual and semi-annual media and analysts’ conferences.
All interested internal and external stakeholders can subscribe to receive ad hoc disclosures and all relevant corporate news automatically at www.swissre.com/media/contacts. Our contact details are provided on page 332.
23 February 2017 annual results 15 March Publication of 2017 Annual Report and 2017 EVM results as well as of AGM 2018 invitation 4 April Investors’ Day in Zurich 20 April 154th Annual General Meeting 4 May Release of first quarter 2018 key financial data 3 August Half-year 2018 results 1 November Release of nine months 2018 key financial data
Date News Method of dissemination 23 January Swiss Re receives branch license to offer reinsurance in India News release 10 February Swiss Re completes public share buy-back programme News release 23 February Swiss Re reports good results, with full-year net income of USD 3.6 billion for 2016; proposes new share buy-back
News release, press conference 16 March Swiss Re proposes a regular dividend of CHF 4.85 per share, bringing total pay-out to shareholders for 2016 up to CHF 2.5 billion and a new CHF 1.0 billion share buy-back programme for 2017
News release 28 March Global insured losses from disaster events were USD 54 billion in 2016, up 43% from 2015, latest Swiss Re Institute sigma says
News release 18 April Swiss Re strengthens its commitment to Asia News release 21 April Swiss Re shareholders approve all proposals put forward by the Board of Directors at Swiss Re’s Annual General Meeting
News release 28 April Swiss Re informs about the format and scope of its adjusted first and third quarter financial reporting going forward
News release 4 May Swiss Re reports solid first quarter net income of USD 656 million News release, media conference call 6 July Swiss Re among first in the re/insurance industry to integrate ESG benchmarks into its investment decisions
News release 7 July Swiss Re partners with Ping An to offer China’s first mobile-enabled typhoon property parametric insurance solution
News release 4 August Underwriting performance and strong investment results support Swiss Re half-year 2017 net income of USD 1.2 billion
News release, press conference 17 August Preliminary sigma estimates for first half of 2017: catastrophes cause global total economic losses of USD 44 billion
News release, sigma study 3 October Swiss Re opens modern office building on Zurich’s Mythenquai: Swiss Re Next
News release, conference call 21 November Large natural catastrophe losses in 2017 and current low prices likely to lead to improved pricing in non-life re/insurance
News release 8 December Swiss Re announces changes to its Group Executive Committee and proposes new members to the Board of Directors
Climate-related financial disclosures (TCFD) These disclosures provide a foundation to improve investors’ and other stakeholders’ ability to appropriately assess and price climate-related risk and opportunities.
To learn more about our overarching commitment as a responsible company and a full account of our recent actions and achievements, we invite you to read our stand-alone 2017 Corporate Responsibility Report at reports.swissre.com/corporateresponsibility -report/2017/
At Swiss Re’s highest governance level, two Board of Directors (BoD) committees are in charge of overseeing implementation of Swiss Re’s climate change strategy. The Chairman’s and Governance Committee, steered by the Chairman, has the overall task of monitoring the Group’s sustainability principles, including initiatives and actions specifically addressing climate change. The Investment Committee reviews Swiss Re’s Asset Management related activities and, as part of this, receives regular updates on Group Asset Management’s responsible investing approach.
Group Risk Management is responsible for maintaining a suitable risk policy framework, and the Business Units drive strategic implementation within their respective areas. Group Asset Management is in charge of developing and implementing Swiss Re’s responsible investing strategy under consideration of the Group-wide sustainability principles, which include specific considerations on climate change.
TCFD Strategy We regularly assess the actual and potential impacts of climate-related risks and opportunities on our businesses, strategy and financial planning.
There is clear empirical evidence that the global climate has been changing, and a far-reaching scientific consensus that this change has been due to human activity, primarily the burning of fossil fuels and agriculture. Swiss Re recognises that climate change, if left unmitigated, will potentially have disastrous effects on society and the global economy. In view of this, we are committed to playing an active role in the transition towards a low-carbon economy and to supporting our private- and public-sector clients in this transition.
Natural catastrophes are a key risk in our property and casualty (P&C) businesses. The damage caused by storms, floods, droughts and other natural catastrophe perils (including earthquakes) can affect millions of lives and the economies of entire countries. In 2017, we received USD 2.3 billion of P&C Reinsurance premiums from our clients for all natural catastrophe covers (for losses larger than USD 20 million). This represents approximately 14% of total premiums in this business segment, which shows the value our clients place on getting re/insurance protection against natural catastrophe risks.
Physical risks posed by climate change could potentially affect three areas of our business: ̤ Reduction/disruption of our own operations ̤ Modelling and pricing of weatherrelated natural perils ̤ Impact on the economic viability of re/insurance for risks exposed to extreme weather events
Modelling and pricing of weatherrelated perils Based on our proprietary loss modelling, we calculate the annual expected losses (AEL) of the major weatherrelated natural catastrophes; the four perils with the largest AEL at present are disclosed on page 148 (North Atlantic hurricane, US tornado, European windstorm, Japanese tropical cyclone). Our models show that with the current climate, the dominant factor is natural variability affecting both the frequency and severity of extreme weather events in all regions. We expect this to remain the case both in the short and medium term (ie 2025 and 2030), in line with the latest scientific findings (see the IPCC Fifth Assessment Report, chapter 11).
Conclusion: Although the physical risks arising from climate change will have significant economic consequences over time, especially from a wider societal perspective, they represent a limited and manageable risk for Swiss Re.
Climate-related litigation risks We first assessed potential climaterelated litigation risks several years ago through our own research. Our latest round of monitoring has shown that litigation activities against large greenhouse gas emitters and associated insurance coverage disputes have in fact declined substantially in recent years and that there have been very few shareholder class actions.
Technological and market shifts The re/insurance sector is likely to experience the technological transition in two ways. Firstly, new technologies by definition do not have loss histories and thus may be challenging to cost accurately. Thus, research and development is required to develop possible loss scenarios and the related expenses. Once these are developed and tested, though, new technologies are likely to present the sector with an opportunity to offer new solutions (see “Climate-related opportunities”, page 144).
Secondly, the new green energy technologies are likely to gradually displace traditional, fossil-based ones. This will alter the energy market and, as a result, gradually change the nature of re/insured assets.
Driven by intensifying efforts to curb climate change, the global vehicle inventory will shift from combustion to electric engines. However, this change is expected to be gradual. As motor insurance contracts are renewed annually, re/insurers will thus be able to develop the appropriate underwriting experience, loss adjustment and claims handling.
1 The future of motor insurance, a joint whitepaper by HERE and Swiss Re, 2016.
Climate-related risks can also impact the value of our investments. A key risk for asset owners is that a changing environment for a particular company or industry sector may lead to stranded assets in investment portfolios, eg the devaluation of investments due to unfavourable changes, such as statutory requirements or taxes. With regard to climate change, the market environment could shift to address mitigation and adaptation requirements related to achieve a 2°C world.
In the current disclosures, we focus on “policy and legal” as well as “technology” risks as we mainly expect developments and changes within these two dimensions that impact the asset values. In this way, we aim to capture those industries and groups of companies that are most exposed to these risks in a positive or negative way and may therefore require adjustments in the near term.
2 Weighted average carbon intensity = (company CO2/company revenue) * (investment/portfolio)
Climate-related opportunities Climate change does not just create risks, it also presents companies with new opportunities. Developing such products and services has long formed one of the four pillars of our climate strategy. With these offerings we pursue two different but complementary objectives: mitigation of climate change and adaptation to some of its effects.
Opportunities related to physical risks in our re/insurance business Since most of our re/insurance contracts are renewed on an annual basis, we can offer our clients effective natural catastrophe protection that helps them cope with current climate risks. The same applies to our weather insurance solutions.
Opportunities for our investments The consistent and broad-based integration of environmental, social and governance (ESG) factors in the investment process is expected to improve the risk/return relationship particularly over the longer term. We consider sustainability risks, such as climate change, in our investment process to make the portfolio more resilient against financial market shocks. This is all the more important as such risk factors are not yet considered as fully reflected in current market valuations.
Swiss Re’s climate resilience under different scenarios The TCFD requests companies to describe the resilience of their strategy taking into account different climaterelated scenarios, including one of a 2°C increase or less. In principle, it would be possible for us to compute the potential long-term effects caused by climate change on Annual Expected Losses (AEL) based on today’s re/insurance book. However, we do not consider this to be meaningful, for the following reasons.
Looking at climate effects in isolation would mean ignoring all the other factors that will shape Swiss Re’s future re/insurance book and thus also our future AELs. These include the company’s strategy and risk appetite, market conditions, capital costs, insurance penetration, storm hardening and other climate adaptation measures. Since our re/insurance book and current AELs are the result of a complex interaction between all these factors, any future scenario would have to consider all of them, in the process obliterating the effect of climate change on the resulting AEL.
On a societal level, our Economics of Climate Adaptation (ECA) studies show that climate change can lead to an increase of economic losses due to weather risks of up to 30% within the next 25 years. More importantly, though, economic development, urbanisation, higher population densities and asset concentrations in flood plains are expected to be the dominant factors in increasing weather-related economic losses. As they continue to rise, our models will gradually factor in this trend, since they are updated and refined at regular intervals.
Sound risk management, underwriting and asset management lie at the core of the re/insurance business. This enables us to use our existing processes and instruments to address climate-related risks.
Physical risks To assess our P&C businesses accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the potential effect of climate change on their frequency and severity.
Swiss Re’s full proprietary integrated risk model is an important tool for managing the business: we use it to determine the economic capital required to support the risks on our books as well as to allocate risk-taking capacity to the different lines of business.
Transition risks in our re/insurance business To ensure appropriate management of transition risks, we have set up an annual monitoring system that combines expertise in risk management, casualty underwriting and relevant legislation to understand the developments in the US market, in particular, and to assess any potential impacts on our business. An underwriting guideline regulates the limits and triggers for the more exposed types of risks. Any deviation from the guideline must be discussed and documented in the underwriting file.
For the other types of transition risks (as well as opportunities) described above we also have risk management systems in place. Technological developments are monitored through Swiss Re’s respective underwriting units and pricing of associated covers is reviewed on an annual basis.
Investments Swiss Re is a long-term investor. Therefore, it is important that we also take a long-term view on the risk factors that may have an adverse impact on our portfolio, such as climate change. Hence, sustainability and climate change are essential topics for our Asset Management. Our Sustainability Risk Framework enables us to identify and address environmental and human rights concerns throughout our business. Its criteria are fully applied to our investments. For further details, see above and our 2017 Corporate Responsibility Report, pages 28–32.
For our dedicated approach towards climate risk management, we review our credit and listed equity portfolio along the development of our carbon footprint on a regular basis. We also monitor our portfolio on coal related investments. As part of our active risk management, we stopped investing in coal-related companies (for details, see page 143).
Further actions to support the transition to a low carbon economy are described in the section “Opportunities for our investments” on page 144.
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, while it does not capture the potential losses in years with intense natural catastrophe activity like 2017. (On page 85 you can see our risk exposures to four major natural catastrophe scenarios, ie single event losses with a 200-year return period.) The figures are the compound result of the 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.
Climate protection offered to (sub-)sovereigns Cover against natural catastrophes accounts for approximately 14% of premiums in our P&C Reinsurance business. As we regularly update our risk models to reflect any changes in the underlying parameters and renew contracts annually, we are in position to offer our clients effective re/insurance protection against current climaterelated risks.
Reflecting our efforts to help expand re/insurance protection by working with public-sector clients, we made this commitment to the United Nations: to advise up to 50 sovereigns and sub-sovereigns on climate risk resilience and to offer them USD 10 billion against this risk by 2020. You can see the progress we have made against this goal in the middle table on the right.
2 Commuting data are gathered bi-annually by means of a survey. The figures are rounded and fraught with considerable uncertainty.
Insured loss Source: Swiss Re Institute in USD bn, at 2017 prices
Uninsured loss in m USD, in�ated sumofInsured loss in m USD, in�ated
Carbon footprint of our investment portfolio In line with TCFD guidelines, we monitor the carbon footprint of our corporate credit and listed equity portfolio on a regular basis. We also evaluated the size of our private equity investments in coal related activities. For the carbon footprint, we use the metric “weighted average carbon intensity”, which defines the portfolio carbon intensity based on relative investment share.
The US credit portfolio is closely aligned with the corresponding benchmark in terms of weighted average carbon intensity.
WEIGHTED AVERAGE CARBON INTENSITY COMPARISON OF THE US CREDIT PORTFOLIO VERSUS CORRESPONDING BENCHMARK PER END OF 2017
WEIGHTED AVERAGE CARBON INTENSITY COMPARISON OF THE UK CREDIT PORTFOLIO VERSUS CORRESPONDING BENCHMARK PER END OF 2017 150 Swiss Re 2017 Financial Report
Since the end of 2015, carbon intensities in both the credit and the listed equity portfolio decreased substantially as part of our thermal coal divestment of more than USD 1.3 billion. On the credit side, carbon intensity has been reduced as we stopped investing in thermal coal-related companies. On the listed equity side, the effect of avoiding coal was larger and led to a reduction of the intensity to one third of the amount at the end of 2015.
WEIGHTED AVERAGE CARBON INTENSITY COMPARISON OF THE LISTED EQUITY PORTFOLIO VERSUS CORRESPONDING BENCHMARK PER END OF 2017
“ During the past year, the Compensation Committee continued to monitor the alignment of Swiss Re’s compensation framework with shareholders’ interests and with our long- term business and risk strategy.”
̤ legal and regulatory developments, including the alignment of the compensation framework with the amended Swiss Financial Market Supervisory Authority (FINMA) and SIX Swiss Exchange (SIX) regulations, and continued compliance of the Board of Directors and Group EC compensation with the Ordinance against Excessive Compensation at Public Corporations (the Ordinance).
On behalf of the Compensation Committee, I would like to acknowledge the strong shareholder support at the Annual General Meeting (AGM) 2017. Swiss Re’s shareholders again approved the proposed aggregate compensation of the members of the Board of Directors and the Group EC. Additionally, all proposals for re-election and election to the Compensation Committee were approved and the 2016 Compensation Report again received a positive outcome in the consultative vote.
Group business performance 2017 Key considerations for annual compensation decisions continue to cover a combination of US GAAP and Economic Value Management (EVM) based business results, qualitative factors and Swiss Re’s pay-forperformance approach. Compensation decisions were made considering Swiss Re’s performance for the reporting year, in which the Group’s US GAAP and economic results were significantly impacted by the large natural catastrophe events in 2017, partially offset by the very strong investment result. ̤ The Property & Casualty Reinsurance
̤ Life Capital delivered strong performance across all metrics and generated significant gross cash for the Group.
Compensation framework Swiss Re’s compensation framework is designed to promote long-term sustainable performance for the Group and its shareholders through a mix of fixed and variable compensation components. It comprises fixed components such as base salary, pensions and other benefits, as well as a combination of variable short- and long-term incentives as outlined later in this Compensation Report. The Compensation Committee continues to review and monitor the compensation framework of Swiss Re considering business strategy, targets, risk awareness and corporate values. External factors with respect to regulatory requirements and legal developments, the international context in which we operate and relevant market data are also taken into account.
AGM 2018 The Compensation Committee remains committed to recommending compensation policies and programmes that support our business strategy and align the interests of our employees with those of our shareholders. We are therefore keen to maintain regular interactions with shareholders and other key stakeholders.
Separately from this and as in the past, shareholders will also be asked to support this Compensation Report in a consultative vote. The Compensation Committee is satisfied that this Compensation Report complies with applicable laws, rules and regulations and provides a comprehensive view of the compensation framework at Swiss Re and the 2017 compensation decisions.
2 Disclosure includes all awards for a reporting year, ie the 2017 aggregated compensation values include the fair value of the Leadership Performance Plan (LPP) granted in April 2017. The Annual Performance Incentive (API) for 2017 for members of the Group EC is subject to approval by the shareholders at the AGM 2018.
The Human Resources function conducts a regular self-assessment of Swiss Re’s compliance with the Compensation Policy. The Compensation Committee reviews this self-assessment and identifies potential areas for improvement. The Compensation Committee receives reports on compensation decisions as appropriate, including a comprehensive review of the effectiveness of the annual compensation review cycle.
Swiss Re is required to assess the Compensation Policy against the requirements of FINMA. As part of this process, the Board’s Finance and Risk Committee is required to review risks related to the Compensation Policy. A comprehensive risk analysis of the Compensation Policy is therefore conducted on an annual basis.
Guiding principles Swiss Re’s 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.
This approach adds to the success of the business by: ̤ supporting a culture of high
Swiss Re aims for total compensation that is competitive in the market.
In addition, Swiss Re seeks to ensure that total compensation is well balanced in terms of fixed versus variable compensation and in terms of short-term versus long-term incentives. This is to encourage sustainable performance and appropriate risk-taking in line with the business and risk strategy.
The Compensation Committee has also approved an authority matrix that defines the limits to which each level of management can authorise compensation payments. The Group CEO or the Compensation Committee, as applicable, approves all compensation that exceeds the pre-set limits. The Group CEO is not involved in decision-making concerning his own compensation.
Base salary Base salary is the fixed compensation paid to employees for carrying out their role and is established based on the following factors: ̤ scope and responsibilities of the role, and qualifications required to perform the role; ̤ market value of the role in the location in which Swiss Re competes for talent; and ̤ skills and expertise of the individual in the role.
Structure Swiss Re operates a Target API (TAPI) system along with a performance management framework that provides equal weighting to results-oriented and behavioural-related performance criteria for all employees. API is awarded for both objectives achieved and the demonstration of desired behaviours.
A TAPI is set based on multiple factors, but primarily on the role being performed and market benchmarks. Similar to the determination of the base salary, the employee’s total compensation and overall pay-mix are taken into account when setting the TAPI. The possible payout for the API ranges from 0 to 2 × TAPI.
In 2017, for the members of the Group EC including the Group CEO, the total of the aggregate TAPIs amounted to CHF 16.42 million. For the Group CEO the TAPI was CHF 2.25 million for the same year.
Funding Swiss Re uses a three-step process to assess business performance to help determine the overall Group API pool. The process comprises a financial, a qualitative and an overall assessment. The financial assessment covers four equally weighted performance factors: return on equity (ROE), net operating margin, EVM profit (% of economic net worth) and economic net worth growth measured for both the Group and each Business Unit individually. Also, multi-year comparisons and an assessment of the quality of earnings are considered. The chart below gives more detail on the criteria used to determine the size of the pool.
Includes consideration for indicators such as client and service quality, risk and control behaviour, franchise building, human capital and talent management and strategic initiatives
Combining a series of overarching tests: includes assessment of market competitiveness and affordability checks
Measurement of the economic impact of profit/loss from previous years’ business, over three years
Additionally, clawback provisions apply in a range of events as defined in the VAI plan rules, enabling Swiss Re to seek repayment of settled awards. Examples of such events are the participant’s conduct or acts which can be considered as malfeasance, fraud or misconduct.
Ve st in g af te r th re e ye ar s Fo rf ei tu re
The individual grant level for each member of the Group EC is based on a stable CHF amount which in any year cannot exceed 1.5 × annual base salary for each member of the Group EC excluding the Group CEO and 2 × annual base salary for the Group CEO. In 2017, the total of the LPP grants awarded to members of the Group EC including the Group CEO amounted to CHF 13.5 million. The LPP grant awarded to the Group CEO amounted to CHF 2.0 million.
Plan duration The vesting and performance measurement period is three years with no additional holding requirement. For LPP awards granted to Group EC members and other key executives, the duration of the LPP is five years comprising a three-year vesting and performance measurement period and an additional two-year holding requirement.
Leadership Performance Plan Purpose The purpose of the LPP is to provide an incentive for Swiss Re’s senior management to create sustainable company performance over the long term. The LPP is a forward-looking instrument awarded to participants to incentivise decision-making that is also in the shareholders’ interest.
The design of the LPP is to: ̤ focus participants’ energies on
earnings, capital efficiency and Swiss Re’s position against peers, all of which are critical to sustained shareholder value creation; ̤ focus participants on long-term goals; ̤ attract and retain individuals of
Funding The LPP pool granted each year is reviewed in the context of sustainable business performance and affordability, and funded as part of the total variable compensation pool.
Global Share Participation Plan Swiss Re offers its employees an opportunity to directly participate in the long-term success of the Group by purchasing shares (for up to a maximum of CHF 7 000 per year of a plan cycle and capped at 10% of base salary), through the Global Share Participation Plan (GSPP). Swiss Re provides a 30% match on the number of shares held by employees at the end of the threeyear plan cycle. The match is subject to forfeiture in case of termination of employment before the end of the plan cycle.
Incentive Share Plan The ISP provides employees with an opportunity to purchase shares with some or all of their immediate cash API. Shares are offered with a 10% discount on the fair market value and are subject to a one-year blocking period. Full shareholder rights apply during this blocking period. The ISP encourages alignment with shareholder interests. At the end of the one-year period, the employee assumes full ownership of the shares.
Compensation approval The determination of compensation for the Group EC including the Group CEO is ultimately subject to AGM approval as outlined in the Articles of Association.
Benchmarking The external compensation advisor to the Compensation Committee conducts an annual review of the compensation of the Group EC relative to a group of reference companies in the financial services industry to ensure that market competitiveness is maintained. The reference companies are regularly reviewed by the Compensation Committee to ensure their continued relevance. The core peer group consists of the following globally active primary insurance and reinsurance firms: Allianz SE, American International Group Inc, Aviva PLC, AXA SA, Chubb Limited, Hannover Rueck SE, MetLife Inc, Muenchener Rueckversicherungs- Gesellschaft AG, Prudential PLC, QBE Insurance Group Ltd, Reinsurance Group of America Inc, SCOR SE, XL Group Ltd and Zurich Insurance Group Ltd.
Certain committees, such as the Audit Committee and the Finance and Risk Committee, meet more frequently or hold longer meetings, and hence have higher workloads. The table on page 115 of the Financial Report provides an overview of the meetings of the Board of Directors and its committees held in 2017.
̤ the annual and binding approval by the AGM of the maximum aggregate amounts of compensation of members of the Board of Directors and of the Group EC (Art. 22);
The Articles of Association are available on the Swiss Re website: www.swissre.com – About us – Corporate governance – Corporate regulations – Articles of Association of Swiss Re Ltd.
̤ Is responsible for making recommendations to the Board of Directors and overseeing the design and implementation of compensation principles, policy, framework, plans and disclosure.
̤ Reviews compensation principles, policies and share-based plans annually to ensure that they remain in line with Swiss Re’s objectives and strategy, shareholders’ interests and legal and regulatory requirements.
̤ Further details can be found in the Corporate Governance section on page 114 of the Financial Report.
Management ̤ The Group CEO, the Group COO and the Chief Human Resource Officer participate in the Compensation Committee meetings.
̤ Niederer Kraft & Frey Ltd provide legal advice, mainly about specific aspects of compliance and disclosure matters regarding compensation.
THE ARTICLES OF ASSOCIATION OF SWISS RE LTD INCLUDE RULES ON: 164 Swiss Re 2017 Financial Report
Individual compensation for the members of the Group EC (excl. Group CEO)
Variable compensation pools for the Control Functions and individual compensation of the Heads of the Control Functions
2 Within the maximum aggregate amount of compensation approved by the AGM. 3 Within the maximum aggregate amount of compensation approved by the AGM and the additional amount available for changes in the Group EC after the AGM as per
the Articles of Association respectively. 4 Board of Directors is informed.
COMPENSATION COMMITTEE’S TIME ALLOCATION TO KEY TOPICS IN 2017 conducts periodic self-assessments to ensure its continued high level of effectiveness. It held six meetings during 2017 and provided an update to the Board of Directors on topics discussed, decisions made and items for approval after each of these meetings. A summary of the topics dealt with by the Compensation Committee during the year is shown on page 166.
Outlined below is an overview of the main topics discussed during 2017: Items relating to the past performance cycle Meeting
̤ Setting of the performance targets for variable compensation for the upcoming year February
̤ Analysis of Group EC members’ compensation relative to external peers June
Compensation of the Board of Directors The compensation of the Board of Directors is reviewed annually, and the Compensation Committee formulates proposals for the approval of the Board of Directors accordingly2.
Risk and Control Related Behaviour assessment of Group and business functions The focus on risk and control related behaviours continues. The Control Functions annually perform an independent assessment of risk and control related behaviours and summarise the outcomes in a consolidated report.
Key considerations for annual compensation decisions cover US GAAP and EVM based business results, qualitative factors and Swiss Re’s pay-for-performance approach.
Swiss Re Group and Business Units In 2017, the Group’s US GAAP performance and EVM results were significantly impacted by large natural catastrophe events including Cyclone Debbie in Australia, the North Atlantic hurricanes, the Mexican earthquakes and the wildfires in California. The destructive force of these events was reflected in both the Property & Casualty Reinsurance and Corporate Solutions results. The very strong investment results across all Business Units partially offset the impact from the large natural catastrophe losses. Life & Health Reinsurance delivered solid US GAAP and economic results, additionally benefiting from a good underwriting performance. Life Capital delivered a strong performance across all metrics and generated significant gross cash for the Group.
Corporate Solutions generated an EVM new business loss primarily driven by large natural catastrophe losses, and the non-recognition of intangible assets (including goodwill) related to the Bradesco joint venture as well as continued pricing pressure and large man-made losses. This was partially offset by profit from investment activities, with a positive impact from spread tightening as well as performance from equity securities.
Life Capital reported an EVM profit primarily driven by a favourable result from large transactions. Investment activities further contributed to the positive result, mainly driven by the impact of spread tightening on UK credit investments and profit from implied equity exposure arising from the unit-linked business.
For further details on the EVM financial performance, refer to the EVM chapter on pages 54–63 of this Financial Report.
Swiss Re performed well on its qualitative dimension in 2017. The positive efforts on client centricity were reflected in high client satisfaction scores in various external benchmarks.
The labour market review concluded that we are acting in line with many reinsurance organisations which have projected a decline in their annual incentive pools. The capital market review has highlighted that the proportionality of our proposed value sharing with employees is below peers in terms of revenue and profit sharing, giving a higher distribution percentage to shareholders.
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 was in at the time of award. In March 2017, the Group VAI 2013 (awarded in 2014) vested with a performance factor of 100.3% (see page 160 for a detailed description of the VAI).
The LPP 2014 award was granted on 1 April 2014 and vested on 31 March 2017. The RSU component is measured against an ROE performance condition. At the end of each year, the performance is assessed and one third of the RSUs are locked in within a range of 0% to 100%. At the end of the three-year period, the total number of units locked in vests. For the LPP 2014 the average performance factor for the RSUs was 99.7% for the three-year period.
Aggregate compensation of the Swiss Re Group The aggregate compensation for the performance years 2016 and 2017 for all employees was as follows: As of 31 December 2017 the Group had 14 485 employees worldwide, compared to 14 053 employees at the end of 2016.
The total compensation of the Group for 2017 amounted to CHF 2 165 million (compared to CHF 2 265 million in 2016), whereof CHF 2 112 million has been or will be paid in cash (compared to CHF 2 211 million in 2016) and CHF 53 million has been granted in share-based awards (compared to CHF 54 million in 2016).
Pensions, social security and benefits 14 053 479 14 485 467
Annual Performance Incentive Cash Annual Performance Incentive 12 609 352 13 839 261
The section below is in line with Swiss law and specifically with Arts. 14 to 16 of the Ordinance against Excessive Compensation at Public Corporations (the Ordinance) which requires disclosure of compensation granted to members of the Board of Directors and the Group EC. Compensation to members of the Board of Directors and the highest paid member of the Group EC is shown separately.
At the AGMs 2016 and 2017 the shareholders approved maximum aggregate compensation amounts for the Board of Directors and Group EC for prospective periods. For the reconciliation of these aggregate amounts to what was awarded please refer to page 178.
Compensation decisions for the Group EC The following table covers payments to 14 members for 2017 of whom 12 were active members of the Group EC for the full year. The 2016 payments also cover 14 members of whom 12 were active members of the Group EC for the full year.
3 For 2017, subject to shareholder approval at the AGM 2018. For 2016, as part of the aggregate amount of shortterm variable compensation approved by the shareholders at the AGM 2017. 4 Disclosure reflects all awards for a reporting year, ie the 2016 value reflects the fair value of LPP awards granted
payments for the period when the member was no longer in the role (eg base salary when on garden leave). 7 Amounts are gross and include social security contributions of the employees. Additionally and not included are
company contributions to social security systems paid by Swiss Re in line with applicable laws which amounted to CHF 2 922 518 in 2016 and CHF 2 866 773 in 2017.
Each member of the Group EC including the Group CEO participates in a defined contribution pension scheme. The funding of pension benefits shown in the previous two tables reflects the actual employer contributions.
Shares held by members of the Group EC The following table reflects Swiss Re share ownership by members of the Group EC as of 31 December: CHF thousands 2016 2017
Cash Annual Performance Incentive2 1 113 810 Value Alignment Incentive2 1 113 810 1 Benefits or allowances paid in cash. Includes health care and accident insurance benefits, lump sum expenses, transportation, child and similar allowances. 2 For 2017, subject to shareholders approval at the AGM 2018. For 2016, as part of the aggregate amount of short-term variable compensation approved by the shareholders
at the AGM 2017. 3 Disclosure reflects all awards for a reporting year, ie the 2016 value reflects the fair value of the LPP award granted in April 2016 and the 2017 value reflects the fair value of
Swiss Re in line with applicable laws which amounted to CHF 308 237 in 2016 and CHF 300 767 in 2017.
Total mortgages and loans to members of the Group EC 0 914 Highest mortgages and loans to an individual member of the Group EC: Edouard Schmid, Group Chief Underwriting Officer n/a 914 Total mortgages and loans not at market conditions to former members of the Group EC 4 300 4 300
(1) Individual Board compensation for the reported financial years 2016 and 2017 (figures in CHF thousands): (2) Individual Board compensation for the term of office between AGM 2017 and AGM 2018 (figures in CHF thousands): The table below provides more detailed information on the compensation paid or payable to each Board member against the maximum aggregate amount of CHF 9 900 000 as approved by the AGM 2017: Members of the Board of Directors Total 2016 Fees and allowances
Renato Fassbind, Vice Chairman, Chairman of the Audit Committee1 897 495 330 825 Mathis Cabiallavetta, former Member2 102 n/a n/a n/a Raymond K.F. Ch’ien, Member 332 190 126 316
Rajna Gibson Brandon, Member 325 190 127 317 C. Robert Henrikson, Chairman of the Compensation Committee 474 277 185 462 Hans Ulrich Maerki, former Member2 105 n/a n/a n/a
Jean-Pierre Roth, former Member2 83 n/a n/a n/a Philip K. Ryan, Chairman of the Finance and Risk Committee5 893 645 233 878 Sir Paul Tucker, Member7 227 189 126 315 Jacques de Vaucleroy, Member3, 4 n/a 304 73 377 Susan L. Wagner, Chair of the Investment Committee 573 335 223 558 Total compensation for the reported financial years8, 9 10 084 5 957 3 538 9 495 1 Acting as the Lead Independent Director.
8 Compensation for the members of the Board of Directors includes fixed fees (cash and shares) and minimal allowances. No sign-on or severance payments have been made. 9 Amounts are gross and include social security contributions of the Board member. Additionally and not included are company contributions to social security systems paid
Jay Ralph, Member 225 50 275 Joerg Reinhardt, Member 225 50 275 Philip K. Ryan, Member Finance and Risk Committee Chairman 225 75 300 295 895 Sir Paul Tucker, Member 225 50 50 325 Jacques de Vaucleroy, Member 225 50 225 500 Susan L. Wagner, Member
Jay Ralph, Member1 n/a 868 Joerg Reinhardt, Member1 n/a 1 168 Carlos E. Represas, former Member2 12 837 n/a Philip K. Ryan, Chairman of the Finance and Risk Committee 6 134 8 892 Sir Paul Tucker, Member3 1 036 2 530 Jacques de Vaucleroy, Member1 n/a 868 Susan L. Wagner, Chair of the Investment Committee 6 111 8 754 1 Elected to Swiss Re’s Board of Directors at the AGM of 21 April 2017. 2 Term of office expired after the completion of the AGM of 21 April 2017 and did not stand for re-election. 3 Elected to Swiss Re’s Board of Directors at the AGM of 22 April 2016.
At the AGM 2016, shareholders approved a prospective maximum aggregate amount of CHF 34.0 million for fixed compensation and variable long-term compensation for the financial year 2017 for the 13 members holding positions in the Group EC at the time of the AGM 2016.
The amount of fixed compensation and variable long-term compensation effectively granted to the 14 members of the Group EC during the financial year 2017 amounted to CHF 29.4 million and therefore was within the approved amount. The amount of CHF 29.4 million includes adjustments in the compensation of a new member of the Group EC as a result of his promotion as per 1 July 2017 to the Group Chief Underwriting Officer position and the related additional costs.
At the AGM 2017, shareholders approved a maximum aggregate amount of compensation of CHF 9.9 million for the 13 members of the Board of Directors for the term of office from the AGM 2017 to the AGM 2018.
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the Compensation Report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the compensation framework and defining individual compensation packages.
Opinion In our opinion, the Compensation Report included in the 2017 Financial Report of the Company for the year ended 31 December 2017 complies with Swiss law and Articles 14 to 16 of the Ordinance.
Group financial statements 182 Income statement 182 Statement of comprehensive income 183 Balance sheet 184 Statement of shareholders’ equity 186 Statement of cash flows 188
Notes to the Group financial statements 190 Note 1 Organisation and summary of significant accounting policies 190 Note 2 Information on business segments 199 Note 3 Insurance information 209 Note 4 Premiums written 214 Note 5 Unpaid claims and claim adjustment expenses 215 Note 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) 232 Note 7 Investments 234 Note 8 Fair value disclosures 242 Note 9 Derivative financial instruments 255 Note 10 Acquisitions 259 Note 11 Debt and contingent capital instruments 260 Note 12 Earnings per share 263 Note 13 Income taxes 264 Note 14 Benefit plans 267 Note 15 Share-based payments 276 Note 16 Compensation, participations and loans of members of governing bodies 278 Note 17 Related parties 279 Note 18 Commitments and contingent liabilities 280 Note 19 Significant subsidiaries and equity investees 281 Note 20 Variable interest entities 284 Note 21 Subsequent events 289 Report of the statutory auditor 290 Group financial years 2008–2017 296
Net premiums written 4 33 570 32 316 Change in unearned premiums –879 803
Premiums earned 3 32 691 33 119 Fee income from policyholders 3 540 586 Net investment income – non-participating business1 7 3 661 3 708 Net realised investment gains/losses – non-participating business2 7 1 484 1 727 Net investment result – unit-linked and with-profit business 7 5 382 3 315 Other revenues 28 32
Expenses Claims and claim adjustment expenses 3 –12 564 –16 730 Life and health benefits 3 –10 859 –11 083 Return credited to policyholders –5 099 –3 298 Acquisition costs 3 –6 928 –6 977 Operating expenses –3 358 –3 308
Earnings per share in USD Basic 12 10.72 1.03 Diluted 12 9.82 1.03
Interest on contingent capital instruments –68 –67 Comprehensive income attributable to non-controlling interests 3 5
Reclassification out of accumulated other comprehensive income For the years ended 31 December 2016 Unrealised investment
Balance as of period end 4 459 –5 –7 –6 074 –1 135 –2 762 2017 Unrealised investment
Balance as of period end 4 746 –2 –10 –5 548 –820 –1 634 1 Reclassification adjustment included in net income is presented in ‘‘Net realised investment gains/losses --- non-participating business’’. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in ‘‘Operating expenses’’.
Equity securities: Available-for-sale (including 23 in 2016 and 277 in 2017 subject to securities lending and repurchase agreements) (cost: 2016: 2 897; 2017: 3 544) 3 375 3 862 Trading 60 3