Group Net income attributable to common shareholders 421 727 73 Gross premiums written 36 406 42 228 16 Premiums earned and fee income 34 461 38 594 12 Earnings per share in CHF 1.34 2.46 84 Shareholders’ equity 27 930 29 251 5 Return on equity in %1 1.4 2.5 Return on investments in % 2.8 4.7 Net operating margin in %2 2.9 3.4 Number of employees3 14 943 15 401 3 Property & Casualty Reinsurance Net income attributable to common shareholders 370 396 7 Gross premiums written 16 545 21 562 30 Premiums earned 16 095 19 275 20 Combined ratio in % 104.0 107.8 Net operating margin in %2 4.3 3.8 Return on equity in %1 3.7 4.4 Life & Health Reinsurance Net income attributable to common shareholders 761 899 18 Gross premiums written 14 527 14 452 –1 Premiums earned and fee income 12 835 13 004 1 Net operating margin in %2 9.4 10.0 Return on equity in %1 11.1 12.4 Corporate Solutions Net loss attributable to common shareholders –405 –647 60 Gross premiums written 4 694 4 974 6 Premiums earned 3 925 4 166 6 Combined ratio in % 117.5 127.9 Net operating margin in %2 –11.1 –16.7 Return on equity in %1 –19.4 –34.1 Life Capital Net income/loss attributable to common shareholders 23 –177 – Gross premiums written 2 739 2 831 3 Premiums earned and fee income 1 606 2 149 34 Gross cash generation4 818 1 138 39 Net operating margin in %2 3.9 2.4 Return on equity in %1 0.4 –3.4 1 Return on equity is calculated by dividing net income/loss attributable to common shareholders by average common shareholders’ equity. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. 3 Regular staff.
Interest rates Major central banks made a sharp monetary policy U-turn in 2019. While 2018 had been a year of gradual policy normalisation, the US Federal Reserve cut interest rates three times in steps of 25 basis points in the second half of 2019. The European Central Bank cut the deposit rate to a new record low of –0.5% and restarted open-ended quantitative easing with asset purchases of EUR 20 billion a month in November 2019. The Bank of Japan also continued its expansionary monetary policy, targeting long-term yields close to zero. The main outlier was the Bank of England, which remained on the sidelines amid Brexit uncertainty.
Stock market performance Despite a softening economic activity and a challenging geopolitical landscape, stock markets performed well in 2019. Equities benefited from the policy U-turn by central banks, which kept monetary policy accomodative, creating a favourable environment for risk assets. This more than offset the negative impact from a slump in earnings growth as margins contracted in the second half of 2019.
Currency movements There was little movement in the US dollar against major currencies in 2019. Policy uncertainty, relatively high US long-term yields and softening growth elsewhere kept demand strong. Over the year, the US dollar strengthened 1.8% against the euro and appreciated by 1.2% against the Chinese renminbi. It was down 4% against the British pound as no-deal Brexit risk receded. It was also down 1.7% versus the Swiss franc, and 1% versus the Japanese yen.
Economic risks affecting re/insurers Downside risks, which were elevated throughout 2019 amid weak economic resilience, have increased in 2020. Global political developments, coupled with the economic impact of the spread of COVID-19 in particular, triggered high levels of uncertainty.
Several political risks could also affect the outlook. While Brexit-related uncertainty has abated, there remains a risk of a no-trade-deal exit at the end of the transition period, with serious repercussions for the UK and the EU. In the EU, there are several significant policy challenges, including migration policy and national budgets. Other unresolved issues, such as fragmented financial markets, fragile banking sectors and elevated debt burdens, could also resurface in a recession.
Finally, US-China tensions continue to be unresolved. The signing of the ‘Phase One’ deal and the focus on the coronavirus have created a hiatus in the dispute between the two countries. We do not expect a meaningful resolution of the trade tensions in the near future, while further escalation remains a risk.
With the monitory policy arsenal largely exhausted and side effects of the ultra-accomodative stance becoming increasingly visible, economies have become less resilient. There will be calls for new approaches such as increased coordination between fiscal and monetary policies to mitigate the economic downturn. This could result in heightened inflation uncertainty and further unsettle financial markets as monetary policy leeway would become more restricted. A scenario of unexpectedly high inflation would also have a sizeable impact on re/insurance claims, especially in casualty lines.
Emerging markets were the main driver of global premium growth, expanding by an estimated 7% in 2019. Non-life business in China and India was particularly strong, with premiums up 9% and 11%, respectively, in real terms. Agriculture and health/private medical insurance were the main drivers of growth. Motor also boosted growth in India, but the segment slowed in China due to weaker car sales and intensified competition after market liberalisation. Premium growth in Latin America and Africa was significantly below the long-term trend, reflecting a difficult economic environment in both regions.
Advanced market premiums grew by around 2% in 2019. Rate hardening in commercial insurance supported premium growth in North America and Asia Pacific in particular. In Western Europe, insurance premiums increased by around 1% alongside more moderate economic growth.
Pricing in commercial non-life insurance strengthened again. The third quarter of 2019 marked the 8th consecutive quarter of rate improvements after almost five years of softening. The upswing broadened across lines of business and regions. Overall profitability in non-life insurance, as measured by return on equity (ROE), improved slightly in Europe and Asia Pacific in the first half of the year compared with 2018. In North America, ROE was boosted by significant equity market gains during the first months of 2019.
Exceptions were Japan, due to high natural catastrophe losses, and Australia, where double-digit claims growth in all major lines of business led to a significant deterioration in underwriting results. Overall, the reversal of the soft market trend of the recent years was not enough to significantly narrow the profitability gap that still besets the non-life insurance sector.
Reinsurance prices, which improved slightly in the 2018 renewals following the 2017 hurricane losses, were broadly stable in the 2019 renewals. There were rate increases in loss-affected lines and regions, but little spill-over into non-loss-affected lines. Preliminary data indicate a combined ratio of around 98% for 2019, an improvement from 101% in 2018.
Overall profits of the reinsurance industry were boosted by the positive development of equity markets and realised gains from further declines in interest rates, which led to an ROE of around 12%. Excluding these windfall gains, however, investment income remained below 3%, and overall profitability was comparably low, with an ROE of 6–8%.
Market outlook In 2020 and 2021, we expect the reinsurance industry to expand by at least the same growth rate as the primary non-life market. Cessions from emerging markets will likely develop stronger than those from advanced markets, given the higher dynamics of the economy and the primary insurance markets.
We expect broadly stable to improving non-life reinsurance prices as a result of rising claims and the end of abundant retrocession capacity.
Emerging market premiums expanded by around 9% on average, albeit with large differences across countries. The Chinese life insurance industry is estimated to have resumed its double-digit growth path with premiums up 13% in 2019, driven by protection products. In 2018, the market had contracted following tighter regulation of wealth management products, which had been among the main growth drivers in the past. In emerging Asia, excluding China, life premiums increased by 7% in 2019. Growth in the Middle East and Africa remained weak, while Latin America grew 4% after a decline the year before.
Market overview The size of the global life reinsurance business was around USD 85 billion in 2019. Around 70% of this is attributable to the US, Canada, the UK and China. Ceding companies from emerging markets accounted for 17% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business.
Market performance We estimate that global life and health reinsurance premiums grew by 3% in 2019. This growth was unevenly distributed between segments and regions. Medical expense reinsurance from emerging markets was up 13%, mainly driven by China and India. In advanced markets, cessions from the US medical expense market drove most of the increase. Globally, this sector grew 7%, contrasting strongly with a more sluggish 1% increase in mortality and health-related reinsurance demand from life insurers.
Against this backdrop, 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. Another area of growth has been longevity risk transfer. The availability of longevity reinsurance has become key to the pricing of annuity transactions. Insurers offering those transactions to pension funds typically look to simultaneously access reinsurance capacity to hedge at least part of the associated longevity risk inherent in these lines.
The operating margin of the life reinsurance industry improved to above 8% of revenues in 2019, up from the 7–7.5% achieved between 2015 to 2018. The contribution from investments declined further due to the ongoing low interest rate environment, while underwriting performance improved.
Revenues Gross premiums written 36 406 42 228 16 Net premiums written 34 042 39 649 16 Change in unearned premiums –167 –1 675 – Premiums earned 33 875 37 974 12 Fee income from policyholders 586 620 6 Net investment income – non-participating business 4 075 4 171 2 Net realised investment gains/losses – non-participating business 65 1 580 – Net investment result – unit-linked and with-profit business –1 593 4 939 – Other revenues 39 30 –23
Expenses Claims and claim adjustment expenses –14 855 –18 683 26 Life and health benefits –11 769 –13 087 11 Return credited to policyholders 1 033 –4 633 – Acquisition costs –6 919 –7 834 13 Operating expenses –3 432 –3 579 4 Total expenses before interest expenses –35 942 –47 816 33
Swiss Re reported a full-year 2019 net income of USD 727 million, driven by a strong Life & Health Reinsurance result and excellent investment performance.
Strategy and priorities Swiss Re’s purpose is to make the world more resilient and act as the ultimate shock absorber for societies and communities. We collect premiums and risk from all over the world, diversify the risks on our balance sheet and pay out claims to those who have been hit by catastrophes. Our business strategy is centred around diversifying our access to risk pools by leveraging our risk knowledge, unique client access and capital strength to achieve our financial targets and create sustainable value for all stakeholders.
The Reinsurance Business Unit remains the core engine of profitability, delivering a market-leading combination of shareholder returns and capital repatriation for the Group. Long-term performance of Property & Casualty Reinsurance (P&C Re) remains strong, despite significant natural catastrophe claims in recent years. Life & Health Reinsurance (L&H Re) is delivering peer-leading returns underpinned by global diversification and strong growth in Asia. In line with our strategy, we are profitably expanding our Reinsurance business through our capabilities in underwriting large transactions and providing innovative solutions. At the same time, we are also accessing corporate and retail market risk directly, through our Corporate Solutions and Life Capital Business Units, respectively. Asset Management is consistently generating attractive returns while taking an industry-leading approach focused on Environmental, Social and Governance (ESG) criteria, leveraging our financial markets expertise and benefiting from our flexible investment platform built on the latest technology and advanced analytics.
In Corporate Solutions, we took decisive management actions in 2019 to return this business to profitability. These measures included cost cutting, reserve strengthening, as well as a reduction in risk exposures in specific lines of business. Portfolio repositioning will allow Corporate Solutions to focus on selected profitable segments, where we are seeing an improving price environment. The next steps in business transformation will focus on de-commoditisation of its core portfolio, selective growth with differentiating capabilities such as innovative risk solutions and expansion through tech-driven initiatives.
Claims in 2019 primarily stemmed from Typhoon Hagibis and Typhoon Faxai in Japan, Hurricane Dorian in the Atlantic, and wildfires, floods and hailstorms in Australia, as well as losses from the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet. The result was further impacted by late claims development from Typhoon Jebi. The net operating margin decreased slightly to 3.8% in 2019 from 4.3% in 2018.
Corporate Solutions incurred a net loss of USD 647 million in 2019, compared with a net loss of USD 405 million in 2018. The current year’s result reflected management actions to reposition the business and large and medium-sized man-made losses, mainly from prior accident years related to the recent deterioration in US casualty. The net operating margin was –16.7% and –11.1% for 2019 and 2018, respectively.
Shareholders’ equity, excluding non-controlling interests, increased to USD 29.3 billion at the end of 2019, up from USD 27.9 billion at the end of 2018. The rise was mainly driven by net income of USD 0.7 billion and unrealised gains on fixed income securities of USD 3.2 billion, partially offset by a payment to shareholders of USD 2.6 billion for the 2018 regular dividend and the share buyback programmes.
Swiss Re achieved a return on equity (ROE) of 2.5% for 2019, compared with an ROE of 1.4% in 2018.
Net premiums earned and fee income for Life Capital increased to USD 2.1 billion in 2019 from USD 1.6 billion in the prior year, driven by growth in the open book life and health insurance business and the termination of an intra-group retrocession agreement with L&H Re. Life Capital continued to generate significant gross cash2 amounting to USD 1.1 billion in 2019, compared with USD 818 million in 2018.
The positive impact of reinsurance In 2019, Reinsurance helped people, businesses and communities by paying out more than USD 12 billion in property and casualty claims. The benefits of reinsurance were not only felt by those impacted by natural catastrophes or other property or casualty losses. During 2019, through the use of mortality payments, Reinsurance supported 142 000 family members who lost a loved one. It is our financial strength and stability that allows us to make insurance payouts promptly, making a difference to people in their time of need.
We are working with our clients and partners to increase resilience around the world by providing insurance coverage and developing new solutions for our society’s growing challenges.
3. Our capital strength, which allows us to promptly pay claims.
Interest expenses –313 –352 12 Income before income tax expense 442 461 4 Income tax expense –72 –65 –10 Net income attributable to common shareholders 370 396 7
Shareholders’ equity Shareholders’ equity decreased to USD 8.3 billion as of 31 December 2019 from USD 9.5 billion on 31 December 2018, primarily driven by dividends paid to the Group of USD 1.4 billion and the capitalisation of inter-segmental payables and receivables following a change in presentation of historic inter-company expense balances. This was partially offset by the net changes in unrealised gains/losses and net income. The return on equity for 2019 was 4.4% compared with 3.7% in 2018.
Premiums earned by line of business, 2019 Total: USD 19.3 billion Premiums earned by line of business, 2019 48% Casualty 38% Property 14% Specialty
For casualty, Swiss Re saw strong rate increases in the US for Excess of Loss treaty business and improvements on proportional treaty business, supported by the material rate increases on the primary side as a response to the growing loss trends. In EMEA and Asia, the outlook for casualty rates is stable.
Swiss Re is closely monitoring the developments of the current SARS-CoV-2 coronavirus pandemic. Depending on further developments, the Business Unit may see an impact on contingency coverages it provided, e.g. event cancellation covers.
Net operating margin The net operating margin for 2019 was 10.0%, an increase from 9.4% in 2018 due to strong investment performance.
Shareholders’ equity Shareholders’ equity increased to USD 8.3 billion as of 31 December 2019 from USD 6.3 billion as of 31 December 2018. The increase of USD 2.0 billion reflects a change in net unrealised gains and net income for the period, partly offset by the dividend paid to the Group.
Outlook The Business Unit expects increases in life and health treaty reinsurance new business to be driven by high-growth markets, with more modest growth in mature markets. In mature markets, the prolonged low interest rate environment continues to have an unfavourable impact on long-term life business. Cession rates are expected to be broadly stable in major markets. The Business Unit sees a continued strong focus of clients on capital, risk and balance sheet optimisation in mature markets, leading to ongoing opportunities for large transactions.
Premiums earned by line of business, 2019 Total: USD 12.8 billion
Strategy and priorities As communicated with half-year 2019 results, Corporate Solutions has carried out a strategic review of its portfolio to address recent underperformance. In addition to increasing reserves and reinsurance protection, decisive management actions include portfolio pruning measures to ensure a more focused and profitable portfolio going forward. Portfolio repositioning, together with efficiency improvements and accelerated momentum in insurance rates, will help Corporate Solutions return to underwriting profitability with an estimated normalised combined ratio of 105% in 2020. The target normalised combined ratio for 2021 remains 98%.
Premiums Net premiums earned were USD 4.2 billion in 2019, an increase of 6.1% year-on-year, driven by significant rate increases and growth in many lines of business, which more than offset the active pruning of several portfolios, including US general liability. Gross premiums written increased by 6.0% to USD 5.0 billion in 2019.
Investment result The return on investments was 3.4% for 2019, compared with 2.1% in 2018, reflecting an increase in the investment result of USD 124 million.
Net investment income increased by USD 16 million to USD 240 million in 2019, mainly due to a higher running yield.
Corporate Solutions offers insurance protection against weather perils and other risks, which is accounted for as derivatives. Insurance in derivative form reported net realised gains of USD 89 million in 2019, compared with USD 30 million in 2018.
Revenues Gross premiums written 4 694 4 974 6 Net premiums written 4 122 4 253 3 Change in unearned premiums –197 –87 –56 Premiums earned 3 925 4 166 6 Net investment income 207 234 13 Net realised investment gains/losses 16 162 –
Claims ratio in % 82.6 93.6 Expense ratio in % 34.9 34.3 Combined ratio in % 117.5 127.9
Swiss Re is closely monitoring the developments of the current SARS-CoV-2 coronavirus pandemic. Depending on future developments, Corporate Solutions may see an impact in certain lines of business, including credit & surety, property and other specialty lines.
Life Capital accelerated its transition to a dynamically growing, digital B2B2C business, creating improved access to risk pools.
The net operating margin in 2019 was 2.4%, compared with 3.9% in the prior year, in line with movements in income.
Life Capital generated significant gross cash of USD 1.1 billion in 2019, compared with USD 818 million in the prior year. The gross cash generated in 2019 was mainly driven by the proceeds from the sale of subordinated bonds issued by ReAssure and a 10% stake sale in ReAssure to MS&AD Insurance Group Holdings Inc, partially offset by the impact of ReAssure recapitalisation ahead of separation. Consistent with the transition of Life Capital, the Group will no longer disclose the gross cash generation for 2020 and beyond.
Net realised gains increased by USD 114 million to USD 191 million in 2019, reflecting additional gains from sales of fixed income securities, partially offset by equity and interest rate derivative losses.
Operating expenses Operating expenses were USD 721 million in 2019, compared with USD 549 million in 2018. The increase was due to expenses related to the separation of ReAssure and investment into the growth of the open book businesses.
Shareholdersʼ equity Shareholdersʼ equity increased by USD 0.2 billion to USD 5.3 billion, mainly driven by increased unrealised gains, partially offset by the net loss and the USD 0.5 billion dividend paid in 2019. The return on equity was –3.4% for 2019, compared with 0.4% for 2018. The year-on-year decrease was due to lower
net income in 2019 including the charge in connection with the agreement to sell ReAssure.
The insight from our R&D is the foundation to how we model and understand risk.
Accelerated exposure growth and growing concentrations in areas with heightened exposure to natural catastrophes, such as coastal zones, have been contributing noticeably to loss activity in property and casualty. While technological progress can have a positive impact on loss frequency and severity in some lines of business, there are broad secular trends driving up loss cost tied to climate change, rapid urbanisation and increasing complexity of business operations. Changing societal trends and attitudes have been impacting claims severity further in specific markets, mainly in the US, a phenomenon commonly described as social inflation. Similarly, on the life and health side, the expansion of genetic testing, rising obesity rates, opioid-related mortality and other trends drive up claims amid stalling mortality improvement rates.
While the effects of the coronavirus are still unfolding, what we have learned from past pandemic outbreaks is that it is important to actively encourage data gathering and cooperation between healthcare and other sectors. Swiss Re continues to engage with leaders in science, insurance and regulatory bodies on the topic.
Profitability, as measured by return on equity, has strengthened in both property and casualty and life and health reinsurance businesses in 2019, in part due to improved realised gains from investment management. With low interest rates set to stay, however, the investment environment will remain extremely challenging. With the industry experiencing its third year of elevated insurance losses, the pressure for improved market discipline is rising, and this discipline has begun to spread from catastropheaffected portfolios to other lines of business. This is leading to improvements in pricing and the exit of several re/insurers from otherwise unsustainable markets.
Strategy Swiss Re’s investment portfolio provided an excellent contribution in 2019, despite headwinds from the declining interest rate environment. Fundamentally, the portfolio performed well with no material impairments alongside gains generated from the fixed income portfolio and strong equity performance. Overall, Swiss Re’s asset allocation changed only moderately during 2019, with a modest reduction in corporate bond exposure and continued deployment in private debt as well as real estate. We continue to systematically incorporate ESG across the entire investment value chain. As in the past, the Group remains flexible should there be a change in the investment outlook or if market opportunities arise.
Asset management delivered excellent value to the Group, supported by a high quality investment portfolio.
Net investment income in USD billions, 2019 (2018: USD 4.1 billion)
The result was primarily driven by net investment income as well as gains within the fixed income portfolio and performance from equity securities, reflecting the Group’s strong overall investment portfolio position. In 2018, the return on investments was 2.8%. The Group’s non-participating net investment income increased to USD 4.2 billion in 2019 from USD 4.1 billion the prior year, demonstrating the stability of the recurring investment income. The Group’s running yield was largely unchanged at 2.8% from 2.9% in the prior year, alongside declining yields.
Our investment portfolio remains well diversified across investment classes, with a continued focus on quality and ESG criteria. We plan to moderately increase our allocation to private markets, including investments in private debt and real estate, which will further diversify the overall investment portfolio.
typically two working days after the ex-dividend date. The corresponding dates in 2020 are 21 and 23 April.
Public share buyback programme On 6 May 2019, the Board of Directors launched the public share buyback programme authorised by the 2019 AGM. This programme was completed on 18 February 2020.
Swiss Re shares Swiss Re had a market capitalisation of CHF 35.6 billion on 31 December 2019, with 327.4 million shares outstanding, of which 290.7 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, ISIN CH0126881561 and Swiss Security Number 12688156.
American Depositary Receipts (ADR) In the US, Swiss Re maintains an ADR level I programme (OTC symbol SSREY).
Share trading The average on-exchange daily trading volume for 2019 was 0.7 million shares. Trading volume peaked at 3.8 million shares on 3 May 2019.
Insurance indices STOXX Europe 600 Insurance 5.43 Bloomberg Europe 500 Insurance 5.57 FTSEurofirst 300 Insurance 0.37 Dow Jones Insurance Titans 30 2.56
Sustainability indices Dow Jones Sustainability Europe 0.77 Dow Jones Sustainability World 0.29 FTSE4Good Global 4.10 Bloomberg Gender Equality 0.29 buyback programme of up to CHF 1.0 billion purchase value to be executed before the 2021 AGM.
Swiss Re will ask the AGM in April 2021 permission to cancel the repurchased shares by way of share capital reduction.
Key share statistics 2015 – 2019 of which Treasury shares and shares reserved for corporate purposes 32 967 2262 34 093 8343 34 866 5164 38 575 3245 36 749 7626
Price per share year-end 98.15 96.50 91.25 90.12 108.70 Price per share year high (intra-day) 99.75 97.85 98.50 98.80 110.45 Price per share year low (intra-day) 74.95 79.00 81.65 84.20 88.90 Daily trading volume (in CHF millions) 134 120 129 126 120 Market capitalisation11 (in CHF millions) 36 385 34 747 31 888 30 516 35 589 ADR price at year-end (in USD) 24.5312 23.76 23.38 22.84 28.12 1 Nominal value of CHF 0.10 per share.
12 Since 15 June 2015, every Swiss Re ADR represents one quarter of a Swiss Re share. Prior to close of business on 12 June 2015, one ADR represented one Swiss Re share.
1 Annual results 2018 (21 February) 2 Annual report 2018 (14 March) 3 Ex dividend date (24 April)
Swiss Re’s 2019 economic result reflected large losses, offset by a strong contribution from investment activities and Life & Health Reinsurance.
Underwriting result in Property & Casualty Reinsurance and Corporate Solutions was impacted by large losses, largely offset by strong performance from investment activities and Life & Health Reinsurance.
‒19 EVM profit in USD millions, 2019 (2018: USD −693 million)
Group performance The EVM loss of USD 19 million in 2019 reflected the impact of large natural catastrophe and man-made losses that adversely impacted Property & Casualty Reinsurance and Corporate Solutions, proactive measures to address ongoing trends in US casualty business, as well as higher capital costs. These losses were partially offset by an excellent investment result, a strong new business result in Life & Health Reinsurance and an estimated EVM profit on the agreement to sell ReAssure.
The EVM loss from previous years’ business amounted to USD 3.3 billion in 2019, compared to an EVM profit of USD 638 million in 2018. The 2019 result reflected unfavourable developments in Property & Casualty Reinsurance and Corporate Solutions, driven by large losses and adverse industry trends in US casualty business and higher capital costs for Property & Casualty Reinsurance.
Investment activities generated an EVM profit of USD 2.1 billion in 2019, compared to a loss of USD 1.7 billion in 2018. The 2019 results reflected credit spread tightening as well as strong performance across equities and alternative investments. The 2018 results were driven by a negative impact from credit spread widening as well as underperformance from equities and Principal Investments.
ENW per share growth amounted to 8.2% in 2019, below the over-the-cycle target of 10%. The underperformance was due to large losses, partially offset by the strong investment result.
Total contribution to ENW in USD billions, 2019 (2018: USD 2.2 billion)
Corporate Solutions reported an EVM loss of USD 805 million in 2019, compared to an EVM loss of USD 673 million in 2018. The EVM profit on new business of USD 164 million was mainly driven by recoveries under the Adverse Development Cover with Property & Casualty Reinsurance, rate hardening and large transactions, partially offset by management actions. Profitable business performance from insurance in derivative form also contributed to the new business profit. The EVM loss on previous years’ business of USD 1.1 billion was impacted by the decisive management actions to address performance issues including reserve strengthening. The previous years’ business result was also impacted by large and medium-sized man-made losses, mainly relating to adverse trends for US casualty business. Investment activities generated an EVM profit of USD 112 million in 2019, compared to a loss of USD 63 million in 2018, with results in 2019 reflecting the impact of credit spread tightening and favourable performance from equity investments, both in contrast to the 2018 result.
Life Capital generated an EVM profit of USD 591 million in 2019, compared to an EVM loss of 93 million in 2018. The EVM profit on new business was USD 133 million, mainly driven by the estimated gain on the agreement to sell ReAssure of USD 0.3 billion, partially offset by underwriting losses driven by expenses to grow the open book businesses. The EVM loss on previous years’ business was USD 137 million, impacted by increased capital costs and expense reserves as well as other reserve strengthening in certain business lines. Investment activities generated an EVM profit of USD 596 million in 2019, compared to a loss of USD 533 million in 2018, driven by credit spread tightening and favourable performance from implied equity exposure arising from unit-linked business. The 2018 EVM loss was impacted by credit spread widening and underperformance from implied equity exposure arising from the unit-linked business.
Profit margin − previous years’ business, % −19.5 −2.5 −88.8 −6.9 −14.2
Cash and cash equivalents 5 695 9 611 In-force business assets 223 075 266 327
Provision for capital costs 7 569 9 850 Future income tax liabilities 4 264 4 203
Gross underwriting result – new business 1 435 3 045 969 427 89 0 5 965
Capital costs −447 −748 −148 −89 −137 −1 570 EVM profit – new business −430 980 −81 66 −179 0 356 EVM profit – previous years’ business 698 168 −530 374 −72 0 638
Capital costs −302 −209 −26 −165 −209 −911 EVM profit – investments −68 −625 −63 −533 −398 0 −1 686
Gross premiums and fees growth rate, % 27.1 37.9 6.2 92.9 n/a 30.2
Gross underwriting result – new business 1 745 3 484 1 307 584 4 0 7 123
Investment result Mark-to-market investment result 3 370 3 388 541 1 870 395 9 565 Benchmark investment result −2 099 −2 166 −357 −933 −91 −5 645
Taxes −269 −242 −38 −188 −72 −810 Capital costs −338 −197 −25 −139 −211 −910
Cost of debt −273 −322 −45 −151 −50 −841 Release of current year capital costs 931 980 176 346 479 2 911
Profit margin – previous years’ business, %1 −19.5 −2.5 −88.8 −6.9 −14.2 1 The overall previous years’ business profit margin for the Reinsurance Business Unit was –10.4%.
Total liabilities and economic net worth 92 812 333 658 20 087 121 496 7 503 −115 075 460 480
Dividends and share buyback −1 420 −250 −505 −415 −2 590 Other, including foreign exchange on economic net worth −1 006 104 579 253 −127 −197 Economic net worth as of 31 December 10 136 14 887 2 306 3 955 4 854 36 138
• Goodwill and other intangibles: EVM excludes the recognition of potential future new business activities, including potential renewals. As a result, no goodwill or other intangible assets are carried in the EVM balance sheet.
• Capital costs: EVM recognises opportunity costs for shareholders’ capital. The present value of capital costs allocated to existing contracts are recognised in the EVM balance sheet.
Goodwill and other intangibles −1 943 −1 847 −342 −31 −515 −4 678
Independent Assurance Report on the Economic Value Management financial information as of 31 December 2019 to the Board of Directors of Swiss Re Ltd, Zurich We have been engaged to perform a reasonable assurance engagement on the Economic Value Management (‘EVM’) financial information of Swiss Re Ltd (the ‘Company’) for the year ended 31 December 2019 (the ‘EVM financial information’). The EVM financial information consists of the income statement, balance sheet, statement of economic net worth and information on business segments as set out on pages 40 to 47 in the Company’s 2019 Annual Report.
In our opinion, the EVM financial information of the Company for the year ended 31 December 2019 as set out on pages 40 to 47 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).
Swiss Re maintained its very strong capital position in 2019 while deploying capital to attractive risk pools and successfully growing the business.
The Group’s capital position remains very strong with a Group SST ratio of 232% as of 1 January 2020, compared with the 220% target. This is supported by our diversified business model and disciplined risk-taking.
Swiss Re’s overarching target is to maintain a very strong capital position that operates efficiently within constraints imposed by regulators and requirements from rating agencies, while giving the company maximum financial flexibility. Swiss Re’s capital allocation decisions are steered to make capital and liquidity fungible to the Group wherever possible, while complying with local regulations and client needs. Cash dividends paid by our Business Units to the Group’s parent holding company, Swiss Re Ltd, have amounted to USD 24.2 billion since 2013.
The strength of our business model allows us to continue to offer an attractive dividend bolstered by a public share buyback programme.
Swiss Re’s risk profile In SST 2020, Swiss Re’s overall risk increases to USD 21.3 billion (compared to USD 19.7 billion in SST 2019), driven by higher insurance risk mainly reflecting business growth and lower interest rates impact. Financial market and credit risk increase only marginally.
The increase in property and casualty risk mainly reflects growth in property business, translating into higher exposure to key natural catastrophe scenarios.
Financial market risk increases slightly, mainly due to repositioning of the credit portfolio, resulting in higher credit spread risk. The slight increase in credit risk is driven mainly by higher credit and surety underwriting risk.
Swiss Re’s leadership in sustainability reflects our strong commitment to steer our business towards a low-carbon future.
Swiss Re’s capital position remains very strong with significant capital deployment supporting business growth in 2019.
Solid capitalization enabling market opportunities Swiss Re’s policy of ensuring superior capitalisation at all times has meant that even after three consecutive years with large insurance losses, our strong capital position and high financial flexibility enabled us to respond to market opportunities and therefore creating sustainable long-term shareholder value by growing the regular dividend.
Swiss Re’s capital management priorities aim to ensure the ability to continue operations following an extremely adverse year of losses from insurance and/or financial market events. Swiss Re’s Board of Directors has also defined an SST capitalisation target of 220% for the Swiss Re Group.
The Group SST 2020 report will be filed with FINMA in April 2020. Accordingly, the information presented below is based on currently available information and may differ from the final Group SST 2020 figures.
In SST 2020, the solvency of Swiss Re Group remains at a very strong level of 232% as of 1 January 2020, above the target of 220%. SST risk-bearing capital increases driven by strong investment contribution and higher supplementary capital, partially offset by capital distribution to shareholders. Underwriting contribution remained positive despite large losses from natural catastrophes, man-made events and increased claims in US casualty business. Strong growth in insurance risk as well as lower interest rates increase SST target capital and SST run-off capital costs (MVM) leading to the observed decrease in the ratio.
The increase in SST NAV to USD 49.2 billion is mainly driven by underwriting and investment contributions, partially offset by dividends paid, share buyback programmes and other contributions.
SST risk-bearing capital – market value margin 40 637 41 873 1 236
The overall contribution from underwriting activities is positive, mainly reflecting underwriting contributions from Life & Health Reinsurance, partially offset by negative underwriting contributions from Property & Casualty Reinsurance, Corporate Solutions and Life Capital: • The Life & Health Reinsurance contribution is mainly driven by strong transactional business growth in EMEA and the Americas as well as core business performance in the Americas, partially offset by adverse assumptions updates in the Americas and Asia.
• The Property & Casualty Reinsurance negative contribution reflects natural catastrophe losses, including typhoons Hagibis and Faxai in Japan, Hurricane Dorian in the Americas, Typhoon Jebi claims update, adverse industry trends for US casualty, Ethiopian Airlines crash and subsequent Boeing 737 MAX grounding, as well as a loss from the adverse development cover with Swiss Re Corporate Solutions Ltd.
• The Corporate Solutions negative contribution reflects previous years’ business developments from reserving actions, large and medium-sized man-made losses, mainly relating to adverse industry trends for US casualty business. This is partially offset by a positive recovery from the adverse development cover with Swiss Reinsurance Company Ltd and rate hardening.
Dividend payments and share buyback programmes lead to a decline in the SST NAV of USD 2.6 billion.
Deductions mainly reflect projected dividends and share buyback programmes (to be paid in 2020 and subject to AGM 2020 approval and subsequent BoD approval), as well as deferred taxes on real estate. These items increase by USD 116 million compared to SST 2019.
Since SST 2019, three major model changes have been implemented and were approved by FINMA in September 2019: • Costing and reserving risk – The improved correlation within portfolios and adjusted calibration of costing risk increase the costing & reserving risk but have no material impact on total risk.
• Non-life claims inflation risk – The update of the inflation model resulted in a decrease in total risk.
In order to derive SST TC, total risk is adjusted for the line item “Other impacts” as shown in the table below.
Other impacts mainly reflect run-off capital costs (MVM) – which are deducted again from target capital to calculate the ratio – as well as the impact from business development over the forecasting period and requirements from FINMA that are not included in total risk as they are not consistent with Swiss Re’s own risk view.
The increase in MVM is mainly driven by the impact of lower interest rates and growth of mortality and health business in Asia and the US.
Business Unit structure and capital allocation Our peer-leading capital repatriation is supported by strong dividend payments from our Business Units. The cash dividends paid to Swiss Re Ltd since 2013 totalled USD 24.2 billion, while the total amount of capital returned to shareholders in the same time period is USD 19.8 billion.
Rating agency Rating agencies assign credit ratings to the obligations of Swiss Re and its rated subsidiaries. The agencies evaluate Swiss Re based on a set of criteria that include an assessment of our capital adequacy, governance and risk management. Each rating agency uses a different methodology for this assessment.
On 18 October 2019, 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, its excellent franchise and diversified product suite across non-life and life reinsurance.
Maintenance of target capital structure Having achieved the Group’s target capital structure in 2016, the focus is now on maintaining and optimising it.
The Group targets a senior leverage ratio of less than 25% and a subordinated (including contingent capital) leverage ratio of less than 20%. In prior years the Group’s leverage ratios included undrawn off-balance sheet facilities (undrawn letter of credit capacity was included in the senior leverage ratio and undrawn, pre-funded subordinated debt facilities were included in the subordinated leverage ratio). To enable better peer comparison, from 2019 these off-balance sheet facilities are excluded from the Group’s leverage ratios to the extent they remain undrawn. As further detailed on page 59, in 2019, the Group took advantage of attractive market conditions to upsize planned funding activities. ReAssure Group also issued GBP 1 billion of subordinated debt as part of the implementation of a more efficient capital structure.
In March 2019, Swiss Re redeemed its senior notes issued by Swiss Re America Holding Corporation of USD 234 million at maturity.
Also in March 2019, Swiss Reinsurance Company Ltd issued EUR 750 million of subordinated notes with a coupon of 2.53% with a first call date in April 2030 and scheduled maturity in April 2050. In April 2019, Swiss Reinsurance Company Ltd issued USD 1 billion of subordinated notes with a coupon of 5.00% with a first call date in April 2029 and scheduled maturity in April 2049. Part of the proceeds of these two issuances were used to redeem the GBP 500 million perpetual subordinated notes that were called in May 2019 as well as the USD 750 million subordinated notes with contingent write-off that were called in September 2019.
In June 2019, ReAssure Group Plc issued three subordinated notes that were initially held by the Swiss Re Group and were subsequently placed with third party investors outside the Swiss Re Group. These subordinated notes comprised GBP 500 million of Tier 2 subordinated notes with a coupon of 5.867% and a scheduled maturity in 2029, GBP 250 million of callable Tier 2 subordinated notes with a coupon of 5.766% with a first call date in 2024 and a scheduled maturity in 2029, and GBP 250 million of Tier 3 subordinated notes with a coupon of 4.016% and a scheduled maturity in 2026.
3 Funded subordinated debt and contingent capital instruments (2015 – 2018 also shows undrawn pre-funded facilities).
The funding requirements under stress include: • Cash and collateral outflows, as well as potential capital and funding support required by subsidiaries as a result of loss events
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 67), and a three-notch ratings downgrade.
Liquidity position of Swiss Reinsurance Company Ltd (SRZ) From a liquidity perspective, SRZ is the most important legal entity of the Group. The estimated total liquidity sources in SRZ available within one year, after haircuts and net of short-term loans from Swiss Re Ltd and securities lending, amounted to USD 21.7 billion as of 31 December 2019, compared with USD 15.0 billion as of 31 December 2018. Based on the internal liquidity stress tests described above, we estimate that SRZ holds surplus liquidity after dividends to Swiss Re Ltd.
Swiss Re applies a differentiated governance approach at the legal entity level, depending on the materiality of individual entities. SRZ, SRCS and SRLC, as well as major legal entities within the Group that are designated as so-called “Level I entities”, are subject to enhanced governance, which includes the following requirements: • Develop and maintain corporate and risk governance documentation that governs the responsibilities of the legal entity Board, committees and management
Group risk governance documents are organised hierarchically across five levels, which are mirrored by equivalent documents at legal entity (LE) level: • (SRL) Bylaws and the charter for the
• The Group Risk Policy is defined by the Board and articulates Swiss Re’s risk appetite framework (risk appetite and tolerance) as well as fundamental risk and capital structure principles.
• 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.
• Risk controller – is tasked by the risk owner with independent oversight of risk-taking activities to mitigate potential conflicts of interest between the risk owner and risk taker; risk controllers are responsible for escalating relevant concerns.
Risk culture Swiss Re fosters and maintains a strong risk culture to promote risk awareness and discipline across all its activities. This risk culture stands for the risk- and controlrelated values, knowledge and behaviour shared by all employees. Its principal components are summarised in a framework that builds on the Group Code of Conduct as well as on key risk management principles in the Group Risk Policy.
Group Executive Committee • Develops and implements risk management framework • Sets and monitors risk limits • Some responsibilities delegated to Group CRO and major legal entities
Legal entity management • Manages underwriting decisions and operational risks in its area
Group CRO • Principal independent risk controller • Heads the Risk
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.
• The Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules and the Code of Conduct. It also assists the Board, Group Executive Committee and other management bodies in identifying, mitigating and managing compliance risks.
• Risk reporting – creates internal risk transparency and enables Swiss Re to meet external disclosure requirements.
Swiss Re has implemented a principlebased integrated internal control system to mitigate identified operational risks, including financial reporting and compliance risks, as well as risks that could impair the effectiveness and efficiency of operations. This control system represents a subset of Swiss Re’s risk control framework and is based on international standards established by COSO (the Committee of Sponsoring Organisations of the Treadway Commission). It is applied on multiple organisational levels, including Group, functions, regions and legal entities.
The Board further details Swiss Re’s risk appetite through its approval or review of the following key steering frameworks as part of the Group’s planning process: target liability portfolio, strategic asset allocation and the Group’s target capital structure.
Swiss Re’s risk tolerance describes the extent to which the Board has authorised Executive Management to assume risk. It represents the amount of risk that Swiss Re is willing to accept within the constraints imposed by its capital and liquidity resources, its strategy, and the regulatory and rating agency environment within which it operates.
The Group’s risk tolerance is based on three objectives: • To protect the shareholders’ franchise by ensuring that the Group is able to continue operating the business following an extreme loss event
• To maintain capital and liquidity at respectable levels that are sufficiently attractive from a client perspective, and that meet regulatory requirements and expectations
• To avoid material operational risks that could subject the Group to large operational losses with corresponding consequences from an economic, reputational or regulatory perspective
C o n tr o l r is k ex p o su re s
Property and casualty insurance risk is mainly driven by underlying risks inherent in the business Swiss Re underwrites, in particular costing and reserving and non-life claims inflation, as well as Atlantic hurricane risk. The main drivers of life and health insurance risk are lethal pandemic, mortality trend, lapse and critical illness risk.
Total risk increases to USD 21.3 billion, driven by higher insurance risk mainly reflecting business growth and lower interest rates impact. Financial market and credit risk increase only marginally. The higher weight of insurance risk leads to increased diversification.
Property and casualty 10 537 11 708 1 170 see page 70 Life and health 8 633 9 857 1 224 see page 71 1 Credit comprises credit default and credit migration risk from both asset management and underwriting. Credit spread risk falls under financial market risk.
1 For the alternative risk measurements, the same risk exposure and data basis is applied as for the SST calculation.
• Financial market risk represents the potential impact on assets or liabilities that may arise from movements in financial market prices or rates, such as equity prices, interest rates, credit spreads, hedge fund prices, real estate prices, commodity prices or foreign exchange rates. Financial market risk originates from two main sources: investment activities and the sensitivity of the economic value of liabilities to financial market fluctuations.
• Credit risk reflects the potential financial loss that may arise due to the diminished creditworthiness or default of counterparties of Swiss Re or of third parties; credit risk arises from investment and treasury activities, structured transactions and retrocession, as well as from liabilities underwritten by credit and surety insurance units.
Property & Casualty • Natural catastrophe • Man-made • Costing and reserving • Claims inflation
• Model risk reflects the potential impact of model errors or the inappropriate use of model outputs. It may arise from data errors or limitations, operational or simulation errors, or limitations in model specification, calibration or implementation; model risk may also be caused by insufficient knowledge of the model and its limitations, in particular by management and other decision-makers.
Reputational risk is not considered a separate risk category but rather represents a possible consequence of any risk type in addition to the potential financial and compliance impact.
All 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 Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through an individual review.
Management The legal entity CROs 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.
Swiss Re’s limit framework for life and health exposures includes risk limits for key risks, such as mortality, longevity, lethal pandemic, critical illness and income protection risk. Market exposure limits are in place for catastrophe and stop loss business. Swiss Re pays particular attention to densely populated areas and applies limits for individual buildings to guard against risk exposure accumulations.
Swiss Re’s central Financial Risk Management team oversees all activities that generate financial market or credit risk. Its mandate covers internally and externally managed assets, strategic participations, treasury activities, and credit and market risks that derive from Swiss Re’s underwriting and retrocession activities, including structured transactions, credit insurance and surety business. The Head Financial Risk Management reports to the Group CRO, with a secondary reporting line to the Group Chief Investment Officer.
Risk developments The slight increase in credit risk is driven mainly by higher credit and surety underwriting risk.
Among financial market sensitivities, the Group is most sensitive to a 50-basis point decrease in interest rates, leading to an estimated decrease in the SST ratio of 12 percentage points.
Operational risk The Group has implemented an internal control system to mitigate operational risks through three lines of control. This system assigns primary responsibility for identifying and managing operational risks to individual risk takers (first line of control), with independent oversight and control by the Risk Management and Compliance functions (second line of control) as well as Group Internal Audit (third line of control). Members of the Group Executive Committee are required to certify the effectiveness of the internal control system for their area of responsibility on a quarterly basis.
Risk Management is responsible for monitoring and controlling operational risks based on a centrally coordinated methodology. This includes a pre-defined taxonomy that is used for identifying, classifying and reporting operational risks, as well as a matrix in which risks are assessed according to their estimated probability and impact. Risks are assessed for their residual economic, financial reporting, reputational and compliance impact, taking into account existing mitigation and controls.
The matrix is also used to assess residual exposures against Swiss Re’s tolerance limits for operational risk. This limit represents the level of operational risk that the Board of Directors and Executive Management teams are willing to accept. Material risks that exceed or are approaching risk tolerance are reported to Executive Management and Boards of Directors at Group and legal entity level. In addition, mitigation strategies are required for all risks that are outside of operational risk limits in order to bring them within tolerance.
Strategic risk Overall responsibility for managing strategic risk lies with the Board, which establishes Swiss Re’s overall strategy. The Boards of legal entities are responsible for the strategic risk inherent in their specific strategy development and execution. Strategic risks are addressed by examining multi-year scenarios, considering the related risks, as well as monitoring the implementation of the chosen strategy year by year in terms of the annual business plan.
Regulatory efforts are becoming increasingly forward-looking, aimed at a broad range of emerging risks, both actual and perceived. If new regulation is not based on clearly understood risks, the resulting requirements may create an excessive burden for both insurers and policyholders. It remains a key priority for Swiss Re to highlight the negative impacts of market entry restrictions or impediments to global diversification towards regulators. At the same time, we mitigate such risks by seeking solutions that reduce the negative impact on Swiss Re and its clients.
A dedicated Political Risk team identifies, assesses and monitors political developments world-wide. Swiss Re’s political risk experts exercise oversight and control functions for named political risks, such as in the political risk insurance business; this includes monitoring political risk exposures, providing recommendations on particular transaction referrals and risk reporting. In addition, the Political Risk team provides specific country ratings that cover political, economic and security-related country risks; these ratings complement sovereign credit ratings and are used to support risk control activities and inform underwriting or other decision-making processes throughout the Group.
The UK has left the EU and the future trade relationship between the UK and EU remains unclear. Swiss Re operates in the UK through the UK branches of Swiss Re’s Luxembourg entities and some UK-domiciled entities. Swiss Re is actively engaging with the relevant UK and EEA regulators to mitigate any impacts on Swiss Re’s businesses or ability to service clients and customers from the negotiations on the new trade relationship between the UK and EU.
Analytical or financial models that are used for costing, valuation and risk capital calculations are governed by Swiss Re’s Model and Tool Assurance Framework. This requires the appropriateness of models to be assessed in an independent end-toend validation process that includes specification, algorithms, calibration, implementation, results and testing. Material models used for costing, valuation of reserves and assets, as well as Swiss Re’s internal risk model, are validated by dedicated teams within Risk Management. These teams provide independent assurance that the framework has been adhered to, and also conduct independent validations. Swiss Re’s risk model is also subject to regulatory scrutiny.
Model-related incidents are captured within Swiss Re’s operational risk framework. In addition, material model developments, incidents and risks are reported in regular risk updates to Executive Management and the Board at Group and legal entity level.
Swiss Re works closely with industry peers to develop and share best practices for assessing and managing model-related risks. In this context, Swiss Re is actively participating in a CRO Forum working group that provides a platform for such exchanges and is working on frameworks for model risk.
Sustainability risk Swiss Re’s continued business success depends on the successful management of sustainability risks, thus helping to maintain the trust of its stakeholders. The Group has a long-standing commitment to sustainable business practices, active corporate citizenship, as well as good, transparent governance. All employees are required to commit to and comply with Swiss Re’s values and sustainability policies.
Potential sustainability risks are mitigated through clear corporate values, active dialogue and engagement with affected external stakeholders, and robust internal controls. These include a Group-wide Sustainability Risk Framework to identify and address sustainability risks across Swiss Re’s business activities. The framework comprises sustainability-related policies − with pre-defined exclusions, underwriting criteria and quality standards − as well as a central due diligence process for related transactional risks.
Sustainability risks are monitored and managed by dedicated experts in Swiss Re’s Group Sustainability Risk team, which is also responsible for maintaining the Sustainability Risk Framework. In addition, this unit supports Swiss Re’s management and business strategy through tailored risk assessments and risk portfolio reviews. It fosters risk awareness through internal training, and facilitates development of innovative solutions to address sustainability issues. Finally, it represents and advocates Swiss Re’s position on selected sustainability risk topics to external stakeholders.
For this purpose, Swiss Re’s risk identification processes are supported by a systematic framework that identifies, assesses and monitors emerging risks and opportunities across all areas of Swiss Re’s risk landscape. This framework combines a bottom-up approach driven by employee input with central and regional experts on emerging risk. The resulting information is complemented with insights from external organisations such as think tanks, academic networks and international organisations, as well as from interaction with clients.
Find more information about Swiss Re’s Emerging Risk Management activities in the interactive online report.
Environmental, social and governance (ESG) issues have grown in importance and become key focus areas in Europe, the US and other key jurisdictions.
Swiss Re Summit We held the Swiss Re Summit at our headquarter in Zurich on 3 December 2019. We brought together the boards and executive teams of the Group and Business Units and the board members of the most important subsidiaries to share experiences, discuss current issues and hear about key trends affecting Swiss Re and the industry at large. The Summit focused on the strategy for the Group as well as for the individual Business Units.
The Group’s CEO and CFO shared insights into our technology strategy, recent R&D achievements and efforts undertaken by the Swiss Re Institute and spoke about the financial and capital targets for the coming years. The three Business Unit CEOs outlined their respective strategies and talked about some of the challenges they currently face. The day ended with a panel discussion on sustainability, which is an integral part of our strategy and our day-to-day business. The Summit was preceded by an Audit Summit, where the members of the SRL Audit Committee met with the members of the Audit Committees of the ten most important Group companies. The participants discussed important ongoing projects as well as the impact of upcoming accounting changes and internal and external audit topics, including the transition to the newly selected External Auditor.
• The Swiss Financial Market Supervisory Authority FINMA provisions on corporate governance, risk management and internal control system at insurers.
Swiss Re’s Code of Conduct provides key principles that guide Swiss Re in making responsible decisions and achieving results using the highest ethical standards. It is built on the five Swiss Re Corporate Values: Integrity, Team Spirit, Passion to Perform, Agility and Client Centricity. The Corporate Governance Guidelines set out Swiss Re’s harmonised governance principles and standards, ensuring a consistent and tailored corporate governance approach across the Group. The Articles of Association define the legal and organisational framework of SRL as the Group’s holding company. The Bylaws define Swiss Re’s governance framework and include the responsibilities of the Board of Directors and the Group EC and their members. The Board Committee Charters outline the duties and responsibilities of the Board Committees and form part of the Bylaws. The Bylaws and the Board Committee Charters are not publicly available.
Network for Innovative Corporate Governance (NICG): First Conference held: Board Dynamics – Information Management Swiss Re and the University of St. Gallen (HSG) entered into a strategic research coorperation arrangement at the beginning of 2019. On 1 July 2019, members of the Swiss business community and academics from HSG met at the Swiss Re Centre for Global Dialogue. The occasion was the founding of the Network for Innovative Corporate Governance (NICG), an initiative for promoting interdisciplinary and cross-generational dialogue on the future of corporate governance and its integral development. The opening conference was dedicated to the topic “Board Dynamics – Information Management”. The conference provided a platform for the exchange of knowledge, for discussions and for addressing possible development potential. The aim was to close certain existing research gaps, to open up innovative topics and, for a broad spectrum of subject areas, to deepen and expand the existing cooperation between academia and practice. NICG is under the leadership of Professor Dr Michèle Sutter-Rüdisser (HSG) and Dr Felix Horber, Swiss Re’s Company Secretary. NICG’s guiding principle is: An innovative contribution to the further development of corporate governance requires a lively exchange and constant discussion. For further information please visit: www.nicg.net/conference
• The Annual General Meeting 2019 re-elected Renato Fassbind, Raymond K.F. Ch’ien, Joerg Reinhardt and Jacques de Vaucleroy as members of the Compensation Committee for a one-year term of office.
Announced composition changes in 2020 • Trevor Manuel and Eileen Rominger will not stand for re-election at the Annual General Meeting 2020. The Board of Directors proposes to elect Sergio P. Ermotti, Joachim Oechslin and Deanna Ong as new members of the Board of Directors for a first one-year term of office until completion of the Annual General Meeting 2021.
Nomination Committee At the constitutive meeting of the Board of Directors following the Annual General Meeting 2019, the Board of Directors established a Nomination Committee. The Nomination Committee’s function is to generally assist the Board of Directors in its overall responsibility to select, nominate and appoint members of the Board of Directors, the Chairman and the members of the Compensation Committee. The following Board members are members of the Nomination Committee: Renato Fassbind (Chair), Joerg Reinhardt, Jacques de Vaucleroy and Susan L. Wagner. For further information see page 96 and www.swissre.com/ about-us/corporate-governance/board-committees.html
• Urs Baertschi, previously President Reinsurance Latin America, was appointed CEO Reinsurance EMEA and Regional President EMEA and a member of the Group EC with effect from 1 September 2019, succeeding Russell Higginbotham, who was appointed CEO Reinsurance Asia and Regional President Asia.
Announced composition change in 2020 • Jonathan Isherwood (current Head of Globals Reinsurance)
will succeed J. Eric Smith, CEO Reinsurance Americas and Regional President Americas, assuming responsibility as CEO Reinsurance Americas with effect from 1 April 2020 and as Regional President Americas and a member of the Group EC with effect from 14 August 2020, when J. Eric Smith retires.
* The Group CLO reports with a dual reporting line to the Group CEO and the Group COO. ** Group Legal is not a Group Function.
Legal structure — listed and non-listed Group companies Swiss Re Ltd (SRL), the Group’s holding company, is a joint stock company, listed in accordance with the International Reporting Standard on SIX Swiss Exchange (ISIN CH0126881561, Swiss Security Number 12688156), domiciled at Mythenquai 50/60 in 8022 Zurich, and organised under the laws of Switzerland.
SRL has a level I American Depositary Receipts (ADR) programme in the US. The ADR are traded over the counter (OTC) (ISIN US8708861088, OTC symbol SSREY). One SRL share equals four ADR. Neither the ADR nor the underlying SRL shares are listed on a securities exchange in the US. Shares represented by ADR for which no specific voting instructions are received by the depositary from the holder will not be voted.
Registered — unregistered1 shares As of 31 December 2019 Shares in %
More information More information on the SRL shares, such as the price performance and trading volume in 2019, Swiss Re’s dividend policy and dividends, the share buy-back programme and an overview of the key share statistics since 2014, is included in the section “Share performance” on pages 32–33 of this Financial Report.
Significant shareholders The following table provides a summary of the disclosure notifications of major shareholders holding more than 3% of voting rights: All notifications received in 2019 are published at www.swissre.com/disclosureofshareholdings
Shareholder Number of shares % of voting rights and share capital
The table on page 86 this Financial Report provides an overview of the issued, conditional and authorised capital of SRL as of 31 December 2019 and 31 December 2018, respectively.
The conditional capital amounts to CHF 5 000 000, permitting the issuance of a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10.
The acquisition of registered shares through the exercise of conversion or option rights and any further transfers of registered shares is subject to the restrictions specified in the Articles of Association (please also see page 87).
The availability of the conditional capital is not limited in time.
Authorised capital The authorised capital of SRL as of 31 December 2019 was as presented in the table on page 86.
The authorised capital amounts to CHF 8 500 000. The Board of Directors is authorised to increase the share capital of the company at any time up to 17 April 2021 through the issue of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10. Increases by underwriting as well as partial increases are permitted. The Board of Directors determines the date of issue, the issue price, the type of contribution and any possible acquisition of assets, the date of dividend entitlement as well as the expiry or allocation of non-exercised subscription rights.
The subscription rights of existing shareholders may not be excluded with respect to a maximum of CHF 5 200 000 through the issue of up to 52 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, out of the total amount of authorised capital.
The maximum number of 85 000 000 shares to be issued under the authorised capital corresponds to 25.96% of the existing share capital.
Changes in capital Changes in 2019 The Annual General Meeting 2019 approved the reduction of the ordinary share capital by CHF 1 121 476.10 from CHF 33 861 946.50 to CHF 32 740 470.40 by cancelling 11 214 761 shares with a nominal value of CHF 0.10 each repurchased by SRL on a second trading line on the SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 11 214 761 shares were repurchased under the share buy-back programme launched on 7 May 2018 until its completion on 15 February 2019. The purchase value of the repurchased own shares corresponded to CHF 999 999 983.08.
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 Article 733 of the Swiss Code of Obligations.
On 17 April 2019 the Annual General Meeting authorised a public share buy-back programme for cancellation purposes consisting of two tranches of up to CHF 1 billion purchase value each for the Board of Directors to repurchase SRL’s shares prior to the 2020 Annual General Meeting. The first tranche of the programme was launched on 6 May 2019 and completed on 18 February 2020. The purchase value of the repurchased own shares corresponded to CHF 999 999 970.00. Together with the Q3/2019 results, which were published on 31 October 2019, the Board of Directors announced that it had decided not to launch the second tranche of the share buy-back programme due to the capital deployment, significant natural catastrophe losses in 2019 and the decision to suspend the initial public offering of ReAssure.
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 Article 733 of the Swiss Code of Obligations. The reduction of the ordinary share capital approved by the Annual General Meeting on 20 April 2018 was published in the Swiss Gazette of Commerce on 24 July 2018.
On 20 April 2018, the Annual General Meeting authorised the Board of Directors to repurchase up to a maximum of CHF 1 billion purchase value of SRL’s own shares prior to the Annual General Meeting 2019 by way of a buy-back programme for cancellation purposes. The programme was launched on 7 May 2018 and completed on 15 February 2019. The purchase value of the repurchased own shares corresponded to CHF 999 999 983.08.
Changes in previous years Information about changes in share capital of SRL as well as of our former parent company Swiss Reinsurance Company Ltd for earlier years is provided in the Annual Reports of these companies for the respective years. For details please visit: www.swissre.com/investors/financialinformation. html
Admissibility of nominee registrations Persons not expressly declaring in their application for entry in the share register that they are holding shares for their own account (nominees) are entered without further inquiry in the share register of SRL as shareholders with voting rights up to a maximum of 2% of the outstanding share capital available at the time. Additional shares held by such nominees that exceed the limit of 2% of the outstanding share capital are entered in the share register with voting rights only if such nominees disclose the names, addresses and shareholdings of any persons for whose account the nominee is holding 0.5% or more of the outstanding share capital. In addition, such nominees must comply with the disclosure requirements of the FMIA.
The Board of Directors is ultimately responsible for the success of Swiss Re Ltd and the Group.
From left to right: Philip K. Ryan, Sir Paul Tucker, Raymond K.F. Ch’ien, Jacques de Vaucleroy, Karen Gavan, Larry Zimpleman, Walter B. Kielholz, Renato Fassbind, Trevor Manuel, Joerg Reinhardt, Susan L. Wagner, Jay Ralph, Eileen Rominger
Members of the Board of Directors According to Article 14 of the Articles of Association, the Board of Directors of Swiss Re Ltd, the holding company of the Group, shall consist of at least seven members. As of 31 December 2019, the Board of Directors consisted of the following members1: Name Nationality Age Initial election
Felix Horber, attorney-at-law, has been the Group Company Secretary of Swiss Re since 2007. He holds a PhD in Law and an Executive Master in European and International Business Law. He is a Certified Director for Board Effectiveness and a Lecturer in Law at the University of St. Gallen, Switzerland.
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.
Renato Fassbind Vice Chairman and Lead Independent Director, non-executive and independent Born: 1955 Nationality: Swiss
Professional experience After two years with Kunz Consulting AG, Renato Fassbind joined F. Hoffmann-La Roche Ltd in 1984, becoming Head of Internal Audit in 1988. From 1986 to 1987, he worked as a public accountant with Peat Marwick in New Jersey, USA. In 1990, he joined ABB Ltd as Head of Corporate Staff Audit and, from 1997 to 2002, was Chief Financial Officer and member of the Group Executive Committee. In 2002, he joined Diethelm Keller Holding Ltd as Group Chief Executive Officer. From 2004 to 2010, he was Chief Financial Officer and member of the Executive Board of Credit Suisse Group Ltd.
Raymond K.F. Ch’ien Member, non-executive and independent Born: 1952 Nationality: Chinese
Hang Seng Bank Ltd* • Board member of China Resources Power
Holdings Company Ltd* and the Hongkong and Shanghai Banking Corporation Ltd
• Honorary President of the Federation of Hong Kong Industries * Listed company
Professional experience Karen Gavan started her career in finance roles at Prudential Insurance, Imperial Life and Canada Life. She joined Transamerica Life Canada in 1992 as Chief Financial Officer and added responsibilities over her tenure becoming Executive Vice President and Chief Financial Officer from 2000 to 2002 of Transamerica Life Canada/AEGON Canada, and from 2003 to 2005 the company’s Chief Operating Officer. From 2005, Karen Gavan assumed a number of non-executive board mandates. She joined the Board of Economical Insurance in 2008 and, until her retirement in November 2016, also served for five years as President and Chief Executive Officer at Economical Insurance, preparing the company for its initial public offering. During her leadership, the company also launched SONNET, Canada’s first fully digital insurer.
Trevor Manuel Member, non-executive and independent Born: 1956 Nationality: South African
Trevor Manuel was elected to the Board of Directors of SRL in 2015. He is a member of the Audit Committee and the Investment Committee.
University of Cape Town • Trustee of the Allan Gray Oris Foundation
Jay Ralph was elected to the Board of Directors of SRL in 2017. He is a member of the Finance and Risk Committee.
Joerg Reinhardt was elected to the Board of Directors of SRL in 2017. He is a member of the Nomination Committee and the Compensation Committee.
Eileen Rominger was elected to the Board of Directors of SRL in 2018. She is a member of the Investment Committee.
Professional experience 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 in 2009. 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 led a team which implemented regulatory policy for mutual funds and federally registered investment advisors. From 2013 to 2018, Eileen Rominger was a senior advisor at CamberView Partners, a provider of advice to public companies on shareholder engagement and corporate governance.
External mandates • Member of the Investment Committee of the JPB Foundation • Member of the Board of Trustees of the
Philip K. Ryan Member, non-executive and independent Born: 1956 Nationality: American
Philip K. Ryan was elected to the Board of Directors of SRL in 2015. He chairs the Finance and Risk Committee and is a member of the Chairman’s and Governance Committee and the Audit Committee. He is also Chairman of Swiss Re America Holding Corporation.
Sir Paul Tucker Member, non-executive and independent Born: 1958 Nationality: British
Sir Paul Tucker was elected to the Board of Directors of SRL in 2016. He is a member of the Finance and Risk Committee and the Investment Committee.
Larry Zimpleman was elected to the Board of Directors of SRL in 2018. He is a member of the Finance and Risk Committee.
USA • MBA, Drake University, USA • Fellow, Society of Actuaries, USA
Independence At least three-quarters of the members of the Board of Directors must be independent members. SRL defines independence in line with best-practice corporate governance standards. To be considered independent a Board member may not be, and may not have been in the past five years, employed as a member of the Group EC, or by any subsidiary of the Group, or may not have a material relationship with any part of the Group (either directly or as a partner, director or shareholder of an organisation that has a material relationship with the Group) other than serving as an independent board member in any subsidiary. In addition, the Board agrees on other criteria that disqualify a Board member from being considered independent, taking into consideration provisions of applicable law, regulations and best practice.
All the members of the Board of Directors meet our independence criteria, with the exception of our Chairman. As a full-time Chairman he is not considered independent.
Information about managerial positions and significant business connections of non-executive directors Walter B. Kielholz, Chairman of the Board of Directors since 1 May 2009, was Swiss Re’s CEO from 1 January 1997 to 31 December 2002. In line with SRL’s independence criteria, Walter B. Kielholz, being a full-time Chairman, is not considered independent. No other director has ever held a management position within the Group. None of the members of the Board of Directors has, or represents a company or organisation that has, any significant business connections with SRL or any of the Group companies, other than as disclosed in Note 19 to the Group financial statements on page 269 of this Financial Report.
Other mandates, activities and functions Article 26 of the Articles of Association governs the requirements regarding the external mandates held by Board members. Please see www.swissre.com/ articlesofassociation
The Articles of Association are available at: www.swissre.com/articlesofassociation proposals. The Board of Directors nominates candidates for Board membership for election at the Annual General Meeting, 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.
Qualifications The Board of Directors needs to secure the necessary qualifications, skills and diversity to perform all required responsibilities. It must assemble among its members the balance of managerial expertise and knowledge from different fields required for the fulfilment of the oversight responsibility as well as for sound, independent decision-making in line with the needs of the business.
The prevalence of these qualifications and skills ensures that SRL has the relevant expertise required for active involvement and supervision of an international listed company.
C or po rate gove rnance Human resources / co m p en satio n
Board members’ training The Board of Directors has a unique role in the company oversight. The company therefore strives to build a strong and effective Board culture, supported by ongoing learning, which is an important component to foster Board effectiveness. Newly elected Board members undergo 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 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. During 2019, the Board of Directors completed training sessions on the following topics: Property & Casualty reserving; Life & Health reserving; the internal capital adequacy model as well as Economic Value Management.
In addition to the skill sets and competencies of the members of the Board of Directors, the principles of gender and age diversity, inclusion, nationality and regional representation play an important role in the composition of the Board of Directors.
Regional representation 6 US/Canada 2 Europe 2 Switzerland 1 UK 1 Asia 1 Africa
If the post 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.
Lead Independent Director The Vice Chairman or another member of the Board of Directors may also assume the role of Lead Independent Director. The Lead Independent Director acts as an intermediary between the Group and its shareholders and stakeholders in the absence of the Chairman or, in particular, when a senior independent member of the Board is required. He may convene and chair sessions where the Chairman is not present. He will communicate the outcome of these sessions to the Chairman.
The Board of Directors proposes, based on a recommendation by the Nomination Committee, that Walter B. Kielholz be re-elected as Chairman of the Board of Directors for a last one-year term. Walter B. Kielholz is a very experienced Chairman with our company. This proposal is in line with the Board of Directors’ aim to ensure stability in the Board of Directors’ composition and work. As announced by Swiss Re on 3 March 2020, Sergio P. Ermotti will be nominated for election by the Annual General Meeting 2021 as Chairman of the Board of Directors to succeed Walter B. Kielholz.
Trevor Manuel and Eileen Rominger will not stand for re-election at the Annual General Meeting 2020. The Board of Directors proposes, based on proposals by the Nomination Committee, the following candidates for first-time election as members of the Board of Directors for a one-year term of office: • Sergio P. Ermotti • Joachim Oechslin • Deanna Ong
Sergio P. Ermotti has been Group Chief Executive Officer and a member of the Group Executive Board of UBS Group since 2011. Before joining UBS, he was Group Deputy Chief Executive Officer at UniCredit and responsible for the business areas of Corporate and Investment Banking, and Private Banking between 2007 and 2010. He started his professional career at Merrill Lynch in 1987, where he held various positions in the areas of equity derivatives and capital markets before he became Co-Head of Global Equity Markets and a member of the Executive Management Committee for Global Markets & Investment Banking in 2001. Sergio P. Ermotti, a Swiss citizen, is a Swiss-certified banking expert and a graduate of the Advanced Management Programme at the University of Oxford, United Kingdom.
Joachim Oechslin was Group Chief Risk Officer and a member of the Group Executive Board of Credit Suisse Group from 2014 to February 2019 and is currently a Senior Advisor at Credit Suisse. Previously, he was Chief Risk Officer and a member of the Group Committee of Munich Re Group (2007–2013), Deputy Chief Risk Officer of AXA Group (2007), Group Chief Risk Officer of Winterthur Group (2003– 2006) and Chief Risk Officer of Winterthur Life & Pensions (2001–2003). Prior to joining Winterthur Group, Joachim Oechslin was a consultant at McKinsey & Company, specialising in the financial services sector. He is a Swiss citizen and holds a Master of Science in Mathematics from the Swiss Federal Institute of Technology (ETH), Zurich, Switzerland.
Deanna Ong has been Chief People Officer and a member of the Group Executive Committee at GIC, a sovereign wealth fund established by the Government of Singapore, since 2017. For the past two years, she has also been a Board member and Chairwoman of the Audit Committee of Swiss Re’s main reinsurance carrier for the Asia region. Deanna Ong joined GIC in 1994 and held various finance roles covering public and private market assets until 2009. From 2009 to 2014, she was Director Finance, responsible for financial management across GIC’s portfolio. In 2012 she also took on responsibility for Human Resources & Organisation and Corporate Governance. Prior to joining GIC, she was a tax accountant with Arthur Andersen & Co. Deanna Ong is a Singapore citizen and holds a Bachelor of Accountancy from the Nanyang Technological University of Singapore.
The Board of Directors furthermore proposes, based on recommendations by the Nomination Committee, that Raymond K.F. Ch’ien, Renato Fassbind, Joerg Reinhardt and Jacques de Vaucleroy be re-elected as members of the Compensation Committee and Karen Gavan be elected as a new member of the Compensation Committee.
Organisational structure of the Board of Directors The Board of Directors constitutes itself at the first meeting following the Annual General Meeting. However, it is the Annual General Meeting though, which elects the Chairman and the members of the Compensation Committee. The Board of Directors elects from 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 (other than the members of the Compensation Committee) as proposed by the Chairman’s and Governance Committee. The Board of Directors may remove 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 of Directors.
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 and ending at the Board meeting following the subsequent Annual General Meeting. For Compensation Committee members, the term of office begins with the election at the Annual General Meeting until completion of the next Annual General Meeting.
Please refer to pages 98 and 99 for an overview of the responsibilities and members of the Board committees. Depending on the responsibility, the Board committees have decision-making powers or act in an advisory capacity.
Chairman’s and Governance Committee Responsibilities The Chairman’s and Governance Committee’s primary function is to act as advisor to the Chairman and to address corporate governance issues affecting the Group and impacting its legal and organisational structure. It is also in charge of succession planning at the Board of Directors level (with the exception of the succession planning responsibilities that lie with the Nomination Committee), oversees the annual performance assessment and self-assessment at both the Board of Directors and the Group EC level.
Members • Walter B. Kielholz, Chair • Renato Fassbind • Philip K. Ryan • Jacques de Vaucleroy • Susan L. Wagner 2019 key focus areas • Sustainability: Oversaw the effective and efficient implementation of the
Independence All members of the Audit Committee are non-executive and independent.
Members • Jacques de Vaucleroy, Chair • Raymond K.F. Ch’ien • Renato Fassbind • Joerg Reinhardt 2019 key focus areas • Compensation Framework and Compensation Plan design: Monitored the effectiveness of the
Finance and Risk Committee Responsibilities The Finance and Risk Committee annually reviews the Group Risk Policy and proposes it for approval to the Board of Directors, reviews risk and capacity limits approved by the Group EC as well as their usage across the Group and reviews the Risk Control Framework. It reviews the most important risk exposures in all major risk categories as well as new products or strategic expansions of the Group’s areas of business. It reviews the risk aspects of control transactions that cover the acqusition of equity ownership in legal entities for strategic purposes. In terms of risk and economic performance measurement it reviews critical principles used in internal risk measurement, valuation of assets and liabilities, capital adequacy assessment, and economic performance management. It also reviews capital adequacy and the Group’s treasury strategy.
Members • Philip K. Ryan, Chair • Jay Ralph • Sir Paul Tucker • Susan L. Wagner • Larry Zimpleman 2019 key focus areas • Cyber risk: Oversaw in particular the successful implementation of the cyber preparedness programme • China growth: Monitored and reviewed the underwriting, operational and reputational risks associated with the growth strategy in China • Claims processes: Reviewed regular updates on claims processes and functions in the
Business Units Reinsurance and Corporate Solutions including the handling of large exposures
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 that a Board of Directors meeting be held on an ad hoc basis, if circumstances require.
Resolutions and quorum A Board meeting has a quorum if at least the Chairman, the Vice Chairman or the Lead Independent Director and the majority of the members of the Board of Directors are present in person, by telephone or by video conference. A Board committee has a quorum if the majority of the Board committee members are present or participate by telephone or video conference.
Each committee provides a report on its activities and recommendations following a committee meeting at the next Board of Directors meeting. If any significant topic arises, the committees contact the Board of Directors immediately. It is the responsibility of each committee to keep the full Board of Directors informed on a timely basis, as deemed appropriate.
Self-assessment An open, transparent and critical board room culture forms the basis for the Board of Directors’ annual review of its own performance and effectiveness. The Board of Directors evaluates its work and the performance of the Chairman. It conducts the self-assessment on the basis of questionnaires, which deal with the Board’s composition, organisation and processes, the Board’s responsibilities as well as with the focus areas and goals of the year under review. The topics are discussed and take-aways defined to be incorporated in the goals for the upcoming year. In addition, each Board committee annually reviews the adequacy of its composition, organisation and processes as well as the scope of its responsibilities, assesses their accomplishments and evaluates the achievement of the goals set and its performance.
Board of Directors 12 meetings2 3¾ hours Group EC members, Group Company Secretary
Compensation Committee 6 meetings4 3 hours Group CEO, Group Chief Human Resources Officer, Head Reward, advisors5
Group CEO, Group CFO, Group CRO, Group CIO, Head Financial Risk Management, Group Treasurer, CFO Asset Management, Group Company Secretary 1 All invitees are requested to attend all meetings, with the exception of the Group EC members’ participation at Board of Directors meetings (please also see page 104). 2 In addition, three decisions by circular resolution. 3 In addition, one decision by circular resolution. 4 In addition, seven decisions by circular resolution. 5 The law firm Niederer Kraft Frey Ltd (NKF) and the human resources consulting firm Mercer provided support and advice for compensation issues during the reporting year.
Representatives of NKF participated in five committee meetings in 2019, representatives of Mercer in four meetings. Mercer and NKF have further mandates with Swiss Re.
Attendance in % Number of Board members 95–99.9 8 1 The attendance rates are calculated taking into account the duration of all meetings the Board members were required to attend.
In addition, an independent external consultant was engaged in 2019 to assess the effectiveness of the Board through one-on-one interviews with the Board members, with a focus on priority setting, committee work, relationship of the Board with senior management and Board culture. The advisor’s report served as a basis for the self-assessment discussion of the Board at the end of the year.
The tables on this and the next pages provide a non-exhaustive summary of the key responsibilities of the Board of Directors and tasks delegated to the Group EC.
Strategy and overall direction of the company • Defines the strategy of the Group based on proposals by the Group EC • approves the capital allocation plan for both Underwriting and Asset Management
• approves the entry into new business activities, provided they are of strategic relevance, and the exit of existing activities
• approves the financial objectives and the means necessary to achieve them
• 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
Group and the organisational structure in line with this model and the strategy
• issues and regularly reviews necessary policies and directives, including governance standards and the Group Code of Conduct
Accounting, financial control and financial planning • Approves the applicable accounting standards for external reporting, budgeting and financial control and planning
• approves an annual budget and a mid-term financial plan based on both accounting and internal economic standards
• is informed of the quarterly and semi-annual financial statements for both SRL and the Group, which are approved by the Audit Committee
• approves the People Strategy of the Group and, on an annual basis, reviews progress towards this strategy
Capital • Takes decisions regarding equity and equity-linked issuances and corresponding share capital increases, if any, and reductions of share capital in line with applicable law
Under the leadership of the Group CEO, the Group EC has management responsibility for matters concerning SRL as a legal entity. Additionally, the Group EC has management and functional responsibility for Group matters. In particular, the Group EC focuses on (the control of) the implementation of the Group Strategy, as promulgated and approved by the Board of Directors. In particular, it includes the responsibilities addressing Group Strategy, including strategic and financial targets for the Business Units; decisions on Group-wide steering and control; allocation of capital and resources to business opportunities; asset and liability management, treasury, Group funding and capital management; finance and risk management, governance, compliance, legal and regulatory affairs; functional issues such as human resources, talent management as well as reputational issues and branding. In particular with respect to the below topics, the Group EC: Governance • Has overall responsibility for managing
Group operations • issues guidelines relating to the delegation of decision-making authority within the Group
Group strategy • decides on legal, financial and management structures, as delegated by the Board of Directors
Planning • Prepares and proposes the Group business plan to the Board of Directors for approval and reviews the Business Units’ business plans
Capital management • Establishes principles on financing through capital markets and the allocation of financial resources within the Group
Risk management • Establishes the principles for external retrocession and the balancing of Group-wide catastrophe and accumulated risk
Legal, regulatory and compliance • Oversees implementation of Groupwide compliance procedures and monitors remediation of any regulatory and compliance deficiencies
Involvement of the Group EC in meetings of the Board of Directors The Group EC members attend Board meetings as deemed appropriate by the Chairman and the other Board members. The presence of the entire Group EC was required for four Board meetings in 2019, and selected members were invited to six further Board meetings. The Group EC members do not attend the constituent meeting of the Board of Directors following the Annual General Meeting and the Board self-assessment session.
Involvement of the Group EC in Board committee meetings As a matter of principle, selected members of the Group EC as well as further senior management members participate in Board committee meetings as advisors. The attendance rate of the Group EC members at Board and Board committee meetings was 95.8% in 2019 (the attendance rate represents the total actual attendance time of all members at all meetings in the year under review, 2019, in relation to the corresponding target attendance time). A detailed summary of Group EC and further senior management participation in Board committee meetings is provided on page 101.
Global Outlook for Insurance, Reinsurance and Financial Markets (quarterly) The report describes trends and provides forecasts regarding the economic environment, the property & casualty/ life & health (re)insurance markets and the financial markets.
Swiss Solvency Test Report (annually) The report provides the legally required update on the assessment of solvency according to the Swiss Solvency Test (SST) of the Group, Swiss Reinsurance Company Ltd, Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Reinsurance Ltd.
Risk management Embedded throughout the business, the Group Risk Management function ensures an integrated approach to managing current and emerging threats. Risk Management plays a key role in the business strategy and planning process, where Swiss Re’s risk appetite framework facilitates risk/return discussions and sets boundaries to Group-wide risk-taking.
The Board of Directors keeps itself abreast of key risk themes and receives the following annual reports from Group Risk Management: the Swiss Solvency Test Report, the Swiss Re Liquidity Report, the SONAR Report on emerging risks, the Sustainability Report, as well as the Own Risk and Solvency Assessment Report. In addition, Group Risk Management provides the Finance and Risk Committee with regular Group Risk Updates from the Group CRO, semi-annual reports on derivate use, as well as annual reports on Global Regulatory Risk. The Investment Committee on its part receives quarterly reports on Financial Risk Management.
These reports cover compliance with the Group’s risk tolerance criteria, major changes in risk and capital adequacy measures and a description of the Group’s main risk issues, including related risk management actions. The Finance and Risk Committee regularly reports to the entire Board of Directors. For further information on Swiss Re’s Risk Management, please see the Risk and Capital Management Report on pages 52–77 (for Risk Management in particular pages 61–77).
Duty to inform on extraordinary events As soon as the Group CEO or other members of the Group EC become aware of any significant extraordinary business development or event, they are obliged to inform the Board of Directors immediately.
Right to obtain information The Board of Directors has complete and open access to the Group CEO and the other members of the Group EC, the Chief Compliance Officer and the Head of GIA. Any member of the Board of Directors who wishes to have access to any other officer or employee of the Group will coordinate such access through the Chairman. The Vice Chairman and the chairpersons may approach the Group EC members as well as further key executives directly if they require information to support their respective (Board committee’s) duties. Any member of the Board of Directors may request at Board meetings to obtain information on any aspect of the Group’s business. Outside Board meetings, any member can direct a request for the provision of information and business records to the Chairman.
External auditor For information regarding the external auditors, please refer to pages 115–116.
From left to right: Urs Baertschi, J. Eric Smith, Edouard Schmid, Moses Ojeisekhoba, Christian Mumenthaler, John R. Dacey, Anette Bronder, Andreas Berger, Thierry Léger, Nigel Fretwell, Guido Fürer, Patrick Raaflaub, Russell Higginbotham, Hermann Geiger
Nigel Fretwell British 57 Group Chief Human Resources Officer May 20133
The following two Group EC members stepped down during 2019: Stepped down
Jayne Plunkett American 49 CEO Reinsurance Asia/Regional President Asia 8 July 2019
Professional experience Christian Mumenthaler started his career in 1997 as an associate at 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 in October 2011. In July 2016, Christian Mumenthaler was appointed Group Chief Executive Officer.
• Member of the Pan-European Insurance Forum, the IMD Foundation Board, the Global Reinsurance Forum, the Steering Board Insurance Development Forum, the Board of Trustees of Avenir Suisse and the Board of Trustees of the St. Gallen Foundation for International Studies
Urs Baertschi Chief Executive Officer Reinsurance EMEA/ Regional President EMEA Born: 1975 Nationality: Swiss and German
Andreas Berger Chief Executive Officer Corporate Solutions Born: 1966 Nationality: German
Professional experience Andreas Berger started his insurance career in 1995 as a leadership trainee at Gerling Group. He held several management roles there, followed by various leadership positions at Boston Consulting Group, before returning to Gerling in 2004 as Head of Commercial Business and International Programs and Affinity Business. When Allianz Global Corporate & Specialty SE (AGCS) was created in 2006, Andreas Berger became its Global Head of Market Management & Communication. In this newly created position, he established an overall market management function for the corporate client segment and served as AGCS’s spokesperson. In 2009, he was appointed AGCS Chief Executive Officer, Regional Unit London. His areas of responsibility included the UK, Ireland, South Africa, the Middle East and Benelux. In 2011 Andreas Berger joined the AGCS Board of Management as Chief Regions & Market Officer (Central & Eastern Europe, Mediterranean, Africa and Asia). In addition, he assumed responsibility for the Global Broker Channel Distribution for the Allianz Group. Andreas Berger joined Swiss Re in March 2019 as Chief Executive Officer Corporate Solutions and member of the Group Executive Committee.
External mandates • Member of the Executive Committee of the International Insurance Society • Honorary appointment as member of the selection committee of the Collège des Ingénieurs
Professional experience Anette Bronder started her career at Hewlett Packard GmbH, where she held several senior management positions, including Director Software Services for Central & Eastern Europe and Director HP Consulting Germany. In 2010, she was appointed Director of Enterprise Technology at Vodafone GmbH in Germany. In 2013, she assumed worldwide responsibility for the Enterprise Delivery and Operations division of Vodafone Group and was based in London. In 2015, Anette Bronder joined T-Systems International as Managing Director Digital Division, where she oversaw the new growth areas Internet of Things, Public Cloud and Healthcare for Deutsche Telekom worldwide. In 2017, she took on additional responsibility for Deutsche Telekom’s global Security Portfolio and Security Operations. Anette Bronder joined Swiss Re on 1 June 2019 and was appointed Group Chief Operating Officer and a member of the Group Executive Committee effective 1 July 2019.
Air Liquide S.A. (as of 5 May 2020, subject to election by the Annual General Meeting)
Professional experience Nigel Fretwell started his career at Barclays PLC, where he held various management roles over 25 years. His last role was as Group Employee Relations Director, leading the development and delivery of key Group-wide People Strategy, Industrial Relations and Employment Policy initiatives. In 2005 he joined HSBC as Human Resources Director for the worldwide operations of HSBC Insurance Brokers Limited. He then served from 2008 to 2011 as Regional Head of Human Resources, Asia Pacific, and from 2009 concurrently as Global Head of Human Resources, Commercial Banking, and finally from 2011 to 2013 as Global Head of Human Resources for Retail Banking and Wealth Management, which included HSBC Insurance and HSBC Asset Management. Nigel Fretwell joined Swiss Re as Group Chief Human Resources Officer in May 2013 and was appointed as a member of the Group Executive Committee effective 1 July 2019.
• Member of the Board of Trustees of G&B Schwyzer-Winiker Stiftung
Professional experience Moses Ojeisekhoba started his career in insurance as a registered representative and agent of The Prudential Insurance Company of America in 1990. From 1992 to 1996, he was a Risk and Underwriting Manager at Unico American Corporation. He then joined the Chubb Group of Insurance Companies as regional Underwriting Manager and, in 1999, became Corporate Product Development Manager in New Jersey and thereafter moved to London as Strategic Marketing Manager for Chubb Europe. In 2002, he was appointed International Field Operations Officer for Chubb Personal Insurance before becoming Head AsiaPacific in 2009, a position he remained in until he joined Swiss Re. Moses Ojeisekhoba joined Swiss Re in February 2012 and was appointed Chief Executive Officer Reinsurance Asia, Regional President Asia and a member of the Group Executive Committee in March 2012. In July 2016, Moses Ojeisekhoba was appointed as Chief Executive Officer Reinsurance.
Changes in 2019 Andreas Berger (former Chief Regions & Markets Officer and a member of the Board of Management of Allianz Global Corporate & Specialty SE) was appointed CEO Corporate Solutions and a member of the Group EC with effect from 1 March 2019. He succeeds Agostino Galvagni, who decided to step down from Swiss Re at the end of 2018. Anette Bronder (previously a member of the Management Board at T-Systems International) was appointed Group Chief Operating Officer and a member of the Group EC with effect from 1 July 2019, succeeding Thomas Wellauer, who retired on 30 June 2019. Nigel Fretwell, Group Chief Human Resources Officer, and Hermann Geiger, Group Chief Legal Officer, were appointed as new members of the Group EC with effect from 1 July 2019. Russell Higginbotham (former CEO Reinsurance Europe, Middle East and Africa (EMEA) and Regional President EMEA) was appointed CEO Reinsurance Asia and Regional President Asia with effect from 8 July 2019. He succeeds Jayne Plunkett, who decided to pursue a new opportunity outside Swiss Re. Urs Baertschi, previously President Reinsurance Latin America, was appointed CEO Reinsurance EMEA and Regional President EMEA and a member of the Group EC with effect from 1 September 2019, succeeding Russell Higginbotham, who was appointed CEO Reinsurance Asia and Regional President Asia. The Group EC has therefore consisted of 14 members since 1 July 2019; prior to that, it consisted of 12 members.
Changes in 2020 Jonathan Isherwood (current Head of Globals Reinsurance) will succeed J. Eric Smith, CEO Reinsurance Americas and Regional President Americas assuming the responsibility as CEO Reinsurance Americas, effective 1 April 2020, and as Regional President Americas and a member of the Group EC, effective 14 August 2020, when J. Eric Smith retires.
Other mandates, activities and vested interests Article 26 of the Articles of Association governs the requirements regarding external mandates held by Group EC members (please see: www.swissre.com/ articlesofassociation). All Group EC members comply with these requirements. Information on external mandates held by the Group EC members is provided in their biographies (pages 107–111).
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 is responsible for the US GAAP and EVM consolidated financial reporting, as well as the relevant quarterly and ad hoc business results disclosure to the financial community. 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. The Group CFO’s responsibilities include the Group strategic process and initiating the respective discussions in the Group EC as preparation for submission of strategic content to the Board of Directors for approval. He augments the Business Units’ activities with targeted initiatives as well as systematically monitors and steers the implementation of the Group Strategy.
Group Chief Investment Officer The Group CIO is responsible for the Group-wide Asset Management function and its investment results. He manages the investment portfolio, advises the BUs on defining their strategic asset allocation (SAA), and implements the Group and BUs SAAs within the risk limits set by the Group EC. The Group CIO retains responsibility for decisions on investment tactics and also provides financial market advice on strategic projects and transactions. In addition, the Group CIO is responsible for the Asset Management organisation and operational and compliance risks pertinent to his responsibilities.
Group Chief Risk Officer The Group CRO is responsible for providing the Board of Directors and Group EC with independent assurance that all of Swiss Re’s risks are being appropriately modelled, governed and managed and that adequate controls are in place. As part of executing these responsibilities, the Group CRO is charged with establishing the Group’s Risk Management Framework (for further details on the Group’s Risk Management Framework, please refer to pages 61–77 of this Financial Report) for all risk categories, including but not limited to financial, insurance and operational risk (the latter comprising reporting risks, legal and compliance risks and other operational risks).
Chairman Swiss Re Institute (SRI) & Group Chief Underwriting Officer The Chairman SRI & Group CUO is responsible for steering capital to the most attractive areas in underwriting, leading themes that are of strategic importance for the Group’s underwriting, providing research, development and analytics for selected portfolios and markets to improve both capital allocation and risk selection, and pursuing long-term strategic innovation and thought leadership by leveraging data, analytics, technologies and insights available in Swiss Re and the market.
Regional Presidents The Regional Presidents for the areas Americas, Asia and EMEA are responsible for representing the Group externally and internally, as well as enhancing the Swiss Re brand and safeguarding the Group’s reputation in the geographies for which they are responsible. The Regional Presidents also assume responsibility for oversight of the Group’s operating platform and coordinate activities across the Business Units in their regions.
The BU Chief Executive Officers The Business Unit CEOs are responsible for the management and performance of the respective BU top-level company as well as the respective Business Unit. The Business Unit CEOs set the business and corporate agenda of the respective Business Unit, ensuring high-quality and performance-oriented and timely decision-making. They oversee the implementation of the decisions made and ensure the Business Unit Executive Committees fulfil their responsibilities.
Statutory rules on participating in the General Meeting of shareholders Owners, usufructuaries or nominees entered in the share register as having voting rights on a specific qualifying day determined by the Board of Directors are entitled to one vote per share held at the General Meeting of shareholders.
The Independent Proxy is elected by the Annual General Meeting 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. The duties of the Independent Proxy are determined by applicable laws, rules and regulations. Any General Meeting of shareholders may remove the Independent Proxy with effect as per the end of the General Meeting of shareholders.
Agenda The Board of Directors announces the agenda items and the proposals for the General Meeting of shareholders. Shareholders with voting rights whose combined holdings represent shares with a nominal value of at least CHF 100 000 may, no later than 45 days before the date of the meeting, request in writing that a particular item, together with the relevant proposals, be included on the agenda.
Registrations in the share register Any share whose owner, usufructuary or nominee is entered in the share register as having voting rights through said share on a specific qualifying day (record date) designated by the Board of Directors entitles its holder to one vote at the General Meeting of shareholders. In 2019, SRL recognised the voting rights of shares registered no later than four working days before the Annual General Meeting of shareholders.
Duty to make an offer SRL has not put in place any specific measures to defend against potential unfriendly takeover attempts. The Board of Directors believes that the company’s best protection is a fair valuation of its shares and that the efficiency of a free market is preferable to artificial obstacles, which can have a negative impact on the share price in the long term.
The Articles of Association provide that the Board of Directors (or to the extent delegated to it, the Compensation Committee) may decide on the continuation, acceleration, amendment or removal of any vesting, blocking or exercise conditions for the payment or grant of deferred compensation. The Board of Directors may also decide to replace the award with shares of the entity assuming control. For more information on the quantitative impact of vested shares, please refer to page 87 of this Corporate Governance Report under the paragraph entitled “Shares”.
KPMG will be proposed to shareholders for election at the AGM 2020 as the new external auditor for the financial year 2021.
Duration of the mandate and term of office of the lead auditors PricewaterhouseCoopers Ltd (PwC) was appointed as the external auditor of SRL 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 2019, following the proposal of the Board of Directors, based on the recommendation by the Audit Committee, re-elected PwC for a term of one year as external auditors.
In line with the Swiss Code of Obligations and to foster external auditor independence, each of the two lead audit partners rotates out of his or her role after seven years. Alex Finn therefore handed over to Roy Clark following the election of PwC as external auditors by the Annual General Meeting 2018. Bret Griffin handed over to Frank Trauschke in May 2018.
PwC provided reports on selected topics at each of the Audit Committee meetings during the reporting year: At the 29 January meeting, PwC provided the External Auditor Update, which covered the PwC Quality,
Performance and Assurance Report as well as the audit-related, tax and non-audit services. At the 19 February Audit Committee meeting, it provided the Q4 and Full-Year Audit Report and on 13 March, the PwC Final Board Report. At the meeting on 15 April, PwC provided the US GAAP and EVM control reports as well as the PwC Quality Assessment. At the Audit Committee meeting on 2 May, it provided the Q1 PwC Report and at the 30 July meeting, the H1/Q2 PwC Report. Furthermore, PwC provided the Audit Plan PwC/fees Report at the 2 October meeting and the 9M/Q3 PwC Report on 30 October.
Evaluation of the external auditor It is the Audit Committee that is responsible for recommending an audit firm to the Board of Directors for election at the Annual General Meeting. Unlike in the European Union, there is no law in Switzerland that provides for a mandatory rotation of the external auditor after a certain number of years. The Audit Committee closely monitors regulatory developments in the EU and elsewhere on this topic. In order to be able to select and recommend an audit firm for election by the shareholders and in line with good corporate governance, the Audit Committee thoroughly evaluates the credentials of the current external auditor annually based on the following main criteria: Investment in the client relationship, quality of delivery, quality of the people and services and focus on client value. The Audit Committee presents the findings of the evaluation to the entire Board of Directors. PwC has a proven record of professionalism and efficiency and fully meets the high demands made by Swiss Re as a global re/insurance Group. The Audit Committee’s assessment of the external auditor is furthermore based on the external auditor’s qualifications, independence and performance. The Audit Committee also evaluates annually the performance of the lead auditors.
Auditor rotation 2021 Considering that PwC has carried out the mandate as external auditor for the Swiss Re Group since 1991, the Board of Directors will propose to the shareholders at the AGM 2020 the election of KPMG as the Group’s new external auditor for the financial year starting on 1 January 2021.
Audit fees The Audit Committee annually reviews the audit fees as well as any fees paid to the external auditor for non-audit services based on recommendations by the Group CFO.
Swiss Re maintains open lines of communication with stakeholders on matters related to its financial and business performance, strategy and business activities through analyst and media conferences and calls, road shows, news releases and corporate reports. The latter encompass the company’s Annual Report, the Half-Year Report and the Sustainability Report, which are made available both in print and digitally. Additionally, Swiss Re publishes the Financial Condition Report, solvency reports for the regulated entities and key quarterly financial information online.
On the Group’s website (www.swissre.com/ newsreleases), visitors can find a host of news and research, publications, video and podcasts as well as discussion and analysis related to Swiss Re and the broader re/insurance industry. The financial calendar displayed below is also available online, and includes, amongst other things access details for analyst conference calls as well as on-demand video recordings of annual and half-year results’ events and Q1/Q3 key financial figures.
The Swiss Official Gazette of Commerce (Schweizerisches Handelsamtsblatt) is Swiss Re’s official medium for prescribed announcements and official information.
• The effectiveness of the current performance measurement approach (ie performance achievements at the business and individual level against the goals set for the year, including behaviour and risk aspects), which determines compensation outcomes.
• The competitiveness of compensation for the Board of Directors, Group Executive Committee (Group EC) and other key executives.
• Legal and regulatory developments, including the compliance of the Board of Directors and Group EC compensation with the Ordinance against Excessive Compensation at Public Corporations (Ordinance).
Furthermore, the Compensation Committee conducted a self-assessment on its own effectiveness.
On behalf of the Compensation Committee, I would like to acknowledge the strong shareholder support at the Annual General Meeting (AGM) 2019. Swiss Re’s shareholders approved all compensationrelated motions and, like in prior years, the 2018 Compensation Report received a positive outcome in the consultative vote.
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.
Through discussions with regulators, key investors and proxy advisors, Swiss Re identified potential enhancements to its compensation disclosure. As a result, the 2019 Compensation Report contains additional information, particularly in the area of realised compensation for the Group Chief Executive Officer (Group CEO).
reported US GAAP and economic result reflects the large natural catastrophe events, man-made losses and measures to address ongoing trends in US casualty.
• Corporate Solutions’ US GAAP and economic results were heavily impacted by natural catastrophe and man-made losses, mainly from prior accident years related to the recent deterioration in the US casualty business, resulting in an overall loss for the year.
• Life Capital’s US GAAP result reflected a charge related to the agreement to sell ReAssure. Gross cash generation was strong, mainly driven by proceeds from the sale of subordinated bonds issued by ReAssure and the sale of a 10% stake in ReAssure to MS&AD Insurance Group Holdings Inc.
The Compensation Committee continues to review and monitor the compensation framework of Swiss Re, considering business strategy, targets, sustainability and Environmental, Social and Governance (ESG) considerations, 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.
There were no material changes to our compensation framework in relation to the year 2019.
compensation for the members of the Board of Directors for the term of office from the AGM 2020 to the AGM 2021.
• Maximum aggregate amount of fixed compensation and variable long-term compensation for the members of the Group EC for the financial year 2021.
• Aggregate amount of variable short-term compensation for the members of the Group EC for the financial year 2019.
78% Base salary 17% Cash API1 2% VAI1 3% LPP1 31% Base salary 19% Cash API1 16% VAI1 34% LPP1 26% Base salary 19% Cash API1 19% VAI1 36% LPP1
1 Dividend payments are made in April of the following year. For 2019, an ordinary dividend of CHF 5.90 is proposed to the AGM 2020.
2 Disclosure includes all awards for a reporting year, ie the 2019 aggregated compensation values include the fair value of the Leadership Performance Plan (LPP) granted in April 2019. The total Annual Performance Incentive (API) for 2019 for members of the Group EC is subject to approval by the shareholders at the AGM 2020. For individuals who left the Group EC during or before the reporting period, disclosure also includes legally or contractually required payments for the period when the individual was no longer in a Group EC position (eg base salary when on garden leave).
3 Including the Group CEO as well as individuals holding a Group EC position at one point during a reporting year. The existing functions of Group Chief Human Resources Officer and Group Chief Legal Officer were added to the Group EC in 2019. As a result, the number of individuals who held a Group EC position at one point during the reporting year has increased to 16 in 2019. Of the 16 individuals, nine were active for the full year 2019 on the Group EC.
of which paid out as dividend1 1 592 196% 1 659 192% 1 766 145%
of which added to retained earnings within 1 FY 2019 is estimated based on the average monthly CHF/USD FX rate as of February 2020. The dividend is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout.
• Ensuring alignment of compensation to business results and individual contribution and recognising both what was achieved and how it was achieved.
• Supporting Swiss Re’s commitment to attract, motivate and retain the qualified talent the Group needs to succeed globally.
• Aligning the interests of employees with those of Swiss Re’s shareholders and society at large.
Swiss Re seeks to ensure that total compensation is competitive in local labour markets and well balanced in terms of fixed versus variable compensation and in terms of short-term versus long-term incentives. This encourages sustainable long-term performance and supports shareholder alignment as well as appropriate risk-taking in line with the business and risk strategy. The compensation package is complemented by competitive pension plans and benefits.
Swiss Re is committed to ensuring equal pay for equal work and has a nondiscriminatory approach to determining compensation and benefits at all levels.
The Board of Directors has approved an authority matrix that defines the limits to which each level of management can authorise compensation payments. The Group CEO, the Compensation Committee or the Board of Directors, as applicable, approves all compensation that exceeds the preset limits. In line with best practice for Corporate Governance purposes, the Group CEO is not involved in decisionmaking concerning his own compensation.
Swiss Re assesses its Compensation Policy against FINMA requirements. As part of this process, the Risk Management function annually reviews risks related to the Compensation Policy and reports its findings to the Compensation Committee.
The Compensation Policy is implemented globally to the extent possible. Variations may apply at the regional and business unit level to accommodate specific requirements, eg talent management and compliance with local regulations.
Swiss Re aims for total compensation that is competitive in the market. Swiss Re also seeks to ensure that total compensation is well balanced in terms of fixed versus variable compensation and in terms of shortterm versus long-term incentives.
* Different variable compensation programmes apply to certain employees in ReAssure. None of the ReAssure employees concerned are Group EC members. ** Certain members of Business Unit Executive Committees (BU ECs) and all Group Managing Directors (GMDs). *** For Group EC members, the API payout range is additionally capped at 3 × annual base salary.
Annual Performance Incentive Purpose The Annual Performance Incentive (API) is a performance-based, variable component of compensation. Combined with the base salary, it provides competitive total cash compensation when both business and individual performance targets are achieved and desired behaviours are demonstrated.
For Group EC members an additional cap applies, which is 3 × annual base salary.
Funding Swiss Re uses a three-step process to assess business performance to help determine the overall Group API pool.
The process (as shown in the chart below) comprises a financial, a qualitative and an overall assessment. The financial assessment covers four equally weighted performance factors versus targets: ROE, net operating margin, EVM profit (% of economic net worth/ENW) and ENW growth per share 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 qualitative assessment is based on the achievement of key objectives that aim to reinforce the success of Swiss Re’s strategy. For each Business Unit/Group Function, an assessment is made considering five defined dimensions: client and service quality, risk and control behaviour, franchise building, human capital and talent management and strategic initiatives.
Allocation The approved Group API pool is further allocated to the Group EC and other senior executive pools, and to pools of different Business Units/Group Functions. This allocation is agreed by the Group CEO based on the assessment of financial and qualitative performance of the respective business area.
Overall Group assessment and proposal from management to the Compensation Committee. Compensation Committee reviews, may request adjustment to any of the steps and recommends the final pool for approval to the full Board of Directors.
Settlement API is generally settled in cash. When the total API level for an employee exceeds a pre-defined amount, the award is split into two components: an immediate cash portion (cash API) and a deferred cash portion (Value Alignment Incentive/VAI).
Plan duration The VAI supports a longer-term perspective by linking awards to performance over a three-year period.
For VAI performance outcomes over past years, please refer to page 139 of this Financial Report.
Group CEO 50% of API Other Group EC members 45% of API Other key executives 40% of API All other employees 50% of the API amount exceeding USD 100 000 with a
minimum deferral amount of USD 5 000 at USD 100 000 and up to a maximum of 40% of API
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 2019, the total of the LPP grants awarded to members of the Group EC, including the Group CEO, amounted to CHF 13.5 million (this figure excludes any awards granted and then forfeited at a later point in the reporting year). The LPP grant awarded to the Group CEO amounted to CHF 2.0 million.
A d d it io n al t w o -y ea r
h o ld in g p er io d fo r
Performance Share Units The performance condition for PSUs is relative total shareholder return (TSR) measured over three years. The PSUs vest within a range of 0% to 200%. Vesting starts at the 50th percentile of TSR relative to peers with 50% vesting and is capped at the 75th percentile relative to peers with 200%** vesting. In case of a negative TSR over three years, the Compensation Committee retains the discretion to trigger vesting at a lower level of TSR.
Forfeiture and clawback provisions apply in a range of events as defined in the LPP plan rules, enabling Swiss Re to seek repayment where appropriate (please see page 129 of this Financial Report for termination and clawback provisions in long-term plans).
Outlook for 2020 In 2019, the Board of Directors has approved changes to the LPP plan design in order to strengthen the focus on growth in terms of operating value creation as an incentive driver. At the same time, it is important that any growth is shareholder value accretive, ie returns exceed cost of capital. In view of this, absolute ENW growth is introduced as a new performance metric.
Supplementary information on ReAssure employees In preparation of a potential Initial Public Offering (IPO) or trade sale of ReAssure, senior management employees in ReAssure were moved onto variable short- and long-term compensation schemes which differ from the API, VAI and LPP in 2019 (none of the ReAssure senior management employees are Group EC members). For reasons of talent retention, these schemes are maintained despite the decision to suspend the IPO and the subsequent agreement to sell ReAssure to Phoenix Group Holdings plc (subject to regulatory and anti-trust approvals).
Matching Share Awards are forfeited as of the date of termination of the employment relationship.
Matching Share Awards are subject of immediate vest as of the date of termination of the employment relationship.
Unvested awards may vest at Swiss Re’s sole discretion. The final decision is subject to the review and approval of the Business Head, Head of Reward, Group Chief Human Resources Officer, Group CEO and, if applicable, the Compensation Committee.
Matching Share Awards may vest if stated in the agreement between Swiss Re and the employee.
Specifically, the Board of Directors (or to the extent delegated to it, the Compensation Committee) may decide at its discretion on the continuation, acceleration, amendment or removal of any vesting, blocking or exercise conditions for the payment or grant of deferred compensation. It may also decide to replace any LPP award with shares of the entity assuming control. In addition, it may apply any other measure which it considers equitable and reasonable, provided this does not constitute impermissible compensation pursuant to the Ordinance. Should the Board of Directors decide to accelerate vesting, performance factors will generally be based on the latest performance estimates available.
Information on “change of control” clauses is also covered in the Corporate Governance section on page 114 of this Financial Report. For more information on the quantitative impact of vested shares, please refer to page 87 of this Financial Report and Note 17 to the Group financial statements on pages 266–267 of this Financial Report.
For the avoidance of doubt, stock ownership guidelines do also apply to the senior executives below the Group EC members (1 × annual base salary).
The fee components are structured to achieve a strong alignment with the interests of Swiss Re Ltd ś shareholders: • Fees are delivered 60% in cash and
Roles and time commitment Swiss Re Ltd’s Board of Directors has a special skill set including experience in key areas such as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory matters, as well as leadership and decision-making experience in large, complex financial institutions. The mandate also demands significant commitment, high integrity and intercultural communication competence. The fees for the members of the Board of Directors reflect different responsibilities and committee memberships. The individual level of pay therefore varies.
The Articles of Association of Swiss Re Ltd include rules on
• Further details can be found in the Corporate Governance section on pages 78–117 of this Financial Report.
• Reviews compensation principles, policies and share-based plans annually to ensure that these 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 99 of this Financial Report.
Management • The Group CEO and the Group Chief Human Resources Officer participate in the Compensation Committee meetings. Up until 30 June 2019, the Group COO also participated in the Compensation Committee meetings.
• These advisors are retained by the Compensation Committee and provide the Compensation Committee with an external perspective. They may also have other mandates with Swiss Re.
The Compensation Committee has an annual agenda to ensure that important reviews take place at the appropriate times throughout the year. The Compensation Committee also commits time to executive sessions and conducts a periodic selfassessment to ensure its high level of effectiveness. It held six meetings during 2019 and provided regular updates to the Board of Directors on topics discussed, decisions made and items for approval after each of these meetings. In addition, on
Maximum aggregate amount of fixed compensation and long-term variable compensation for the members of the Group EC
Board of Directors2 1 Within the maximum aggregate amount of compensation approved by the AGM. 2 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
At Swiss Re, the compensation cycle begins in December and runs through to April of the following year. The Compensation Committee oversees each stage of the process, starting with deciding on the variable compensation pool for the prior performance year, reviewing this decision, and setting targets for the upcoming year.
Independence of the Control Functions In order to ensure the continued independence of Control Functions, their compensation approval processes differ in that key annual compensation decisions for these functions are approved at the Board level. This includes the approval of the aggregate API pools of the Control Functions and the approval of the individual compensation for the head of each Control Function.
Swiss Re Group and Business Units In 2019, the Group’s US GAAP performance and Economic Value Management (EVM) results were significantly impacted by large natural catastrophe events, man-made losses and increased claims in US casualty, which are reflected in both the Property & Casualty Reinsurance and Corporate Solutions result. The investment result reflected strong equity market performance, including a significant contribution from the sale of the Group’s investment in the Brazilian insurance group SulAmérica S.A. and gains within the fixed income portfolio. Life & Health Reinsurance delivered strong US GAAP and economic results. Life Capital generated significant gross cash for the Group.
Corporate Solutions reported a net loss, reflecting the impact of large and mediumsized claims, mainly from prior accident years, related to recent deterioration in the US casualty business.
Corporate Solutions generated an underwriting loss primarily driven by a combination of reserve strengthening and high frequency and an increasing severity of large and medium-sized man-made losses. Investment activities were outperforming across credit and equity investments.
Sustainability and Environment, Social and Governance (ESG) considerations continued to be key topics in 2019. Swiss Re refined its Group Sustainability Strategy, further embedding sustainability in its core activities. Swiss Re was cofounder of the United Nations’ Net-Zero Asset Owner Alliance and committed to decarbonise its business model, for example through a carbon-neutral investment portfolio by 2050.
Swiss Re’s client and service quality is assessed on an annual basis through leading external benchmarks. Both clients and non-clients perceived Swiss Re as a leading brand in property and casualty and life and health reinsurance in 2019. Corporate Solutions received positive client feedback on the implemented management actions and the transparent communication related to pruning activities as well as the de-commoditising of its core business. Life Capital successfully improved the client experience by focusing on operational excellence and enhanced processes. Swiss Re demonstrated its societal engagement beyond traditional risk transfers, for example by contributing to disaster relief in the aftermath of Cyclone Idai in Mozambique.
Reinsurance and risk are intrinsically linked. The continuous assessment by Swiss Re’s Assurance functions kept the Group focused: there was a robust risk governance framework with a clear risk appetite and accountability for managing risk. A clear tone from the top encouraged an effective and open risk culture.
The labour market review concluded that Swiss Re is acting in line with the majority of reinsurance organisations, which have projected an increase in their annual incentive pools compared to the prior year, although pools are still below target levels.
Analysis showed that market competitiveness of Swiss Re’s compensation is decreasing. Attrition rates are increasing in certain business areas and locations, and retention risks are emerging for critical talent.
For further details on the EVM financial performance, refer to the EVM chapter on pages 34–47 of this Financial Report.
In 2019, Swiss Re’s 15 401 employees performed well on the qualitative dimension: an increase in transactions in conjunction with cost discipline, strengthened client satisfaction, continued focus on sustainability, relevant research activities and thought leadership at industry events set a strong foundation for the coming years.
Joint efforts across Business Units and Group Functions have enabled Swiss Re to deliver on key strategic initiatives in 2019. Examples include the strategic repositioning of Corporate Solutions (to restore profitability and transform into a business that sets new standards and leads the industry forward). In ReAssure, the preparation for deconsolidation within a timeframe significantly below market norms stood out and the subsequent agreement to sell ReAssure to Phoenix Group Holdings plc (subject to regulatory and anti-trust approvals) maximises the long-term value for Swiss Re shareholders.
• Launched a new holistic cyber reinsurance solution, providing a single, flexible, end-to-end solution to insurers’ cyber exposure challenges.
Performance targets used for the financial assessment are considered to be commercially sensitive and disclosure of such may provide an unfair advantage to Swiss Re’s competitors. However, to further increase transparency on the bonus-setting process, indicative achievements against the targets are disclosed.
Overall assessment of Group API Pool from a number of different perspectives, eg labour market, capital market, compensation competitiveness and retention
VAI plan year Performance period remaining as of 31 December 2019 Swiss Re Group performance factor 2017 (awarded 2018) 1 year to be determined 2018 (awarded 2019) 2 years to be determined
Three-year average of the EVM previous years’ business profit margin: –3.8%
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 is 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 2016 and LPP 2017, the average performance factor for the RSUs was 32.3% and 1.67%, respectively, for the three-year period.
Illustrative example of realised performance for the LPP 2017–2020 Granted and realised LPP 2017–20 are shown below for a a sample grant of CHF 100 000 on the LPP 2017. This is a simplified representation for illustrative purposes only. The number of RSUs and PSUs has been rounded to the nearest full number for ease of readability. For the disclosure of actual realised compensation for the Group CEO, please refer to page 144 of this Financial Report.
Fixed compensation Base salaries 181 67 180 63 Pensions, social security and benefits 181 24 180 27
Annual Performance Incentive Cash Annual Performance Incentive2 171 39 170 38
Long-term variable compensation Leadership Performance Plan2 164 38 163 39 Other payments Severance payments3 3 0 0 0 1 Foreign currency conversions calculated using December 2019 year-to-date FX rates for 2019 figures and December 2018 year-to-date FX rates for 2018 figures (where relevant). 2 Includes separate variable short-term and long-term compensation schemes for ReAssure. 3 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and
The total compensation of the Group for 2019 amounted to CHF 2 310 million (compared to CHF 2 208 million in 2018), whereof CHF 2 256 million has been or will be paid in cash (compared to CHF 2 156 million in 2018) and CHF 54 million has been granted in share-based awards (compared to CHF 52 million in 2018).
Long-term variable compensation Leadership Performance Plan3 404 50 453 52 Other payments Severance payments4 439 28 387 24 1 Regular staff.
Compensation decisions for members of governing bodies 14 members 16 members CHF thousands1 2018 2019
Total fixed and variable compensation 42 842 43 859 Compensation due to members leaving7 1 411 3 143 1 Foreign currency conversions calculated using December 2019 year-to-date FX rates for 2019 figures and December 2018 year-to-date FX rates for 2018 figures (where relevant). 2 Benefits or allowances, eg housing, schooling, lump sum expenses, relocation expenses and taxes, child and similar allowances. 3 Swiss Re’s Pension Fund has amended its regulations with effect from 1 January 2019, including some adjustments to the benefits provided to insureds in Switzerland. In consideration of
4 Covers payments reflecting the time in the role as Group EC members. 5 For 2019, subject to shareholder approval at the AGM 2020. For 2018, based on shareholders’ approval at the AGM 2019 of the aggregate amount of short-term variable compensation. The
8 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with applicable laws, which amounted to CHF 2 109 031 in 2018 and CHF 1 971 899 in 2019 (for the individuals who joined the Group EC in 2019, the 2019 figure excludes employer social security contributions made during the period prior to joining the Group EC).
The section below is in line with Swiss law and specifically with Articles 14 to 16 of the Ordinance against Excessive Compensation at Public Corporations (the Ordinance), which require 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 AGM 2018 and the AGM 2019, the shareholders approved the maximum aggregate compensation amounts for the Board of Directors and Group EC for the prospective periods. For the reconciliation of these aggregate amounts to what was awarded, please refer to page 148 of this Financial Report.
Compensation decisions for the Group EC The 2019 figures in the following table cover payments to 16 individuals who held a Group EC position at one point in 2019 (of whom nine were active on the Group EC for the full year) and legally or contractually required payments made in 2019 to an individual who stepped down from the Group EC in 2018. The 2018 figures cover payments to 14 individuals who held a Group EC position at one point in 2018 (of whom 11 were active on the Group EC for the full year). The number of Group EC positions was increased from 12 to 14 in 2019: the existing positions of Group Chief Human Resources Officer and Group Chief Legal Officer were added to the Group EC.
Overall, total variable compensation for individual members of the Group EC (including the Group CEO) who were active on the Group EC for the full year 2019 ranged from 137% to 238% of total fixed compensation.
The Compensation Committee and the Board of Directors carefully considered the performance of the Group EC in 2019 and concluded that, given the overall business environment for the Swiss Re Group and the qualitative achievements, a modest API increase compared to last year is warranted. Nevertheless, this amount overall still remains below target levels.
Compensation decisions for the highest-paid member of the Group EC The table below shows the compensation paid to Christian Mumenthaler, Group CEO (in the role since 1 July 2016): The performance of the Group CEO is evaluated against both quantitative targets (as defined in the Group Plan approved by the Board of Directors) and qualitative goals agreed between the Board of Directors and the Group CEO, designed to support long-term business strategy and drive sustainable performance across the Swiss Re Group.
applicable laws, which amounted to CHF 230 930 in 2018 and to CHF 264 515 in 2019.
development 1 For 2019, subject to shareholder approval at the AGM 2020. 2 The LPP 2017 grant took place on 1 April 2017 and was based on a share price of CHF 90.70 (at the grant valuation date of 24 February 2017). Since vesting of the LPP 2017
Christian Mumenthaler, Group Chief Executive Officer 119 029 100 734 Urs Baertschi, CEO Reinsurance EMEA/Regional President EMEA n/a 10 076 Andreas Berger, CEO Corporate Solutions n/a 11 293 Anette Bronder, Group Chief Operating Officer n/a 11 293 John R. Dacey, Group Chief Financial Officer 55 178 50 369 Nigel Fretwell, Group Chief Human Resources Officer n/a 30 222 Guido Fürer, Group Chief Investment Officer 68 971 62 960 Agostino Galvagni, former CEO Corporate Solutions 55 178 n/a Hermann Geiger, Group Chief Legal Officer n/a 31 476 Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia 26 277 31 808 Thierry Léger, CEO Life Capital 55 178 50 369 Moses Ojeisekhoba, CEO Reinsurance 55 178 50 369 Jayne Plunkett, former CEO Reinsurance Asia/Regional President Asia 44 142 n/a Patrick Raaflaub, Group Chief Risk Officer 55 178 50 369 Edouard Schmid, Chairman Swiss Re Institute & Group Chief Underwriting Officer 41 962 44 095 J. Eric Smith, CEO Reinsurance Americas/Regional President Americas 44 142 40 295 Thomas Wellauer, former Group Chief Operating Officer 55 178 n/a
Compensation for members of the Board of Directors The following two tables illustrate (1) the individual compensation for the members of the Board of Directors for the reported financial years 2018 and 2019 and (2) the individual compensation for the members of the Board of Directors paid or payable for the term of office from AGM 2019 to AGM 2020.
(1) Individual Board compensation for the reported financial years 2018 and 2019 (figures in CHF thousands; foreign currency conversions calculated using December 2019 year-to-date FX rates for 2019 figures and December 2018 year-to-date FX rates for 2018 figures, where relevant)
Philip K. Ryan, member, Chair Finance and Risk Committee3 894 658 240 898 Sir Paul Tucker, member 325 195 130 325 Jacques de Vaucleroy, member, Chair Compensation Committee4 633 520 198 718 Susan L. Wagner, member, Chair Investment Committee 575 357 238 595
2 Term of office expired after the completion of the AGM of 20 April 2018 and did not stand for re-election. 3 Includes fees received for duties on the board of US Group companies.
4 Includes fees for duties on the board of Luxembourg Group companies. 5 Includes fees for duties on the board of ReAssure Group companies. 6 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. 7 Amounts are gross before deduction of social security contributions of the Board member. Additionally and not included are company contributions to social security systems paid by
Swiss Re in line with applicable laws which amounted to CHF 414 704 in 2018 and CHF 392 690 in 2019. For Board members domiciled outside of Switzerland, company social security contributions are refunded, if bilateral social security agreements between Switzerland and the country of domicile apply and provide for such refund.
For loans and mortgages offered up until the transfer, in general, credit was secured against real estate or pledged shares. The terms and conditions of loans and mortgages were typically the same as those available to all employees of the Swiss Re Group in their particular locations to the extent possible.
Swiss-based variable-rate mortgages had no agreed maturity dates. The basic preferential interest rates equaled the corresponding interest rates applied by the Zurich Cantonal Bank (“Zürcher Kantonalbank”) minus one percentage point. Where fixed or floating interest rates were preferential, the value of this benefit for the period from 1 January 2019 until the transfer has been included under “allowances” in the tables covering compensation decisions for Group EC members.
Total mortgages and loans to members of the Group EC 900 0 Highest mortgage or loan to an individual member of the Group EC: Edouard Schmid, Chairman Swiss Re Institute & Group Chief Underwriting Officer 900 0 Total mortgages and loans not at market conditions to former members of the Group EC 4 300 0
(2) Individual Board compensation for the term of office between AGM 2019 and AGM 2020 (figures in CHF thousands; foreign currency conversions calculated using December 2019 year-to-date FX rates, where relevant) The table below provides more detailed information on the compensation paid or payable to each Board member against the maximum aggregate amount of CHF 9.9 million, as approved by the AGM 2019: Shares held by members of the Board of Directors The number of shares held by members of the Board of Directors as of 31 December were: Loans to members of the Board of Directors No loans were granted to current or former members of the Board in 2019 and no loans were outstanding as of 31 December 2019.
Compensation for former members of governing bodies During 2019, payments in the total amount of CHF 0.3 million were made to seven former members of the Group EC. This amount is made up of company contributions payable by Swiss Re to governmental social security systems in line with applicable laws, benefits in the context of the outstanding mortgages and loans not at market rates, risk benefits and company commitments for tax-related services.
Walter B. Kielholz, Chairman 3 800 Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and Nomination Committees
Maximum aggregate amount approved for fixed compensation and variable long-term compensation
At the AGM 2019, the 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 2019 to the AGM 2020.
As shown on page 147 of this Financial Report, the compensation paid to the 13 members of the Board of Directors for their term of office from the AGM 2019 to the AGM 2020 is CHF 9.6 million and therefore within the approved amount.
We have audited the accompanying Compensation Report included in this 2019 Financial Report of Swiss Re Ltd (the ‘Company ’) for the year ended 31 December 2019. The audit was limited to the information according to Articles 14-16 of the Ordinance against Excessive Compensation at Public Corporations (the ‘Ordinance’) contained in the tables on pages 143 to 148 of the Compensation Report.
Opinion In our opinion, the Compensation Report included in the 2019 Financial Report of the Company for the year ended 31 December 2019 complies with Swiss law and articles 14–16 of the Ordinance.
Swiss Re has a long track record as a responsible company. In our understanding this means a commitment to sustainable, long-term value creation. Through our enhanced Group Sustainability Strategy we have further sharpened this commitment and have clearly defined sustainability as a strategic, long-term value driver.
Starting from the premise that climate change creates physical, liability and transition risks, the TCFD’s aim is to offer consistent and effective financial disclosures that allow investors and other stakeholders to assess the climate risks faced by companies and to take appropriate action.
To learn more about our Group Sustainability Strategy and for a full account of our recent actions and achievements, we invite you to read our stand-alone 2019 Sustainability Report at: reports.swissre.com/sustainability- report/2019/
The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews all top risk issues and exposures, including those with a specific climate dimension.
The role of the Board of Directors is the oversight of the development and adoption of sustainability policies and strategies, while the Group Executive Committee approves them.
Group Risk Management is responsible for maintaining a suitable risk policy framework, as well as for coordinating the Group’s Sustainability Strategy, mandate and topics. The Business Units drive the strategic implementation within their respective areas, and Group Asset Management is responsible for developing and implementing the Group’s Responsible Investing Strategy, which also contains a dedicated approach to climate change.
You can read more about our sustainability governance in our 2019 Sustainability Report, page 20.
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 from the burning of fossil fuels and agriculture. Swiss Re recognises that climate change, if not mitigated, 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 & Casualty (P&C) businesses. The damage caused by storms, floods, droughts and other natural catastrophe perils (including wildfires) can affect millions of lives and the economies of entire countries. In 2019, we received USD 2.94 billion of property and casualty reinsurance premiums from our clients for all natural catastrophe covers (for losses larger than USD 20 million). This represents approximately 15% of total premiums in P&C Reinsurance, which shows the importance our clients place on obtaining re/insurance protection against natural catastrophe risks.
On average, insured losses due to natural catastrophes have increased steadily over the past 20 years. The key reasons have been economic development, population growth, urbanisation and a higher concentration of assets in exposed areas. At the same time, the protection gap, ie the difference between insured and total economic losses, has remained substantial in all regions (see graph on page 165).
You can find out more about our Group Sustainability Strategy, our 2030 Sustainability Ambitions and Climate Action Plan in the 2019 Sustainability Report, pages 9–13. As our Climate Action Plan indicates, understanding the risks posed by climate change and identifying the potential to create suitable products and services are and will continue to be priorities for Swiss Re.
Our own operations According to our in-house catastrophe loss models, severe weather risks are potentially of importance for some of our operations, mainly in Florida and on the northeastern coast of the US. However, even assuming an extreme climate change scenario, we do not expect any of these office locations to be exposed to risk levels that would question their economic viability. In 2012, Hurricane Sandy in New York showed that some of Swiss Re’s offices are already exposed to severe weather risks. In response, we sharpened the Group’s business continuity management to minimise property losses and business interruption. Thanks to these investments, we are able to swiftly transfer work to unaffected locations if required and to keep potential financial impacts to a minimum.
Modelling and pricing of weather-related perils Based on our proprietary loss modelling, we calculate the annual expected losses (AEL) and loss-frequency distributions of major weather-related natural catastrophes. The four perils with the largest AEL at present are disclosed on page 164 (North Atlantic hurricane, US tornado, European windstorm, and Japanese tropical cyclone).
Impact on the economic viability of re/insurance protection An increase in the frequency and severity of extreme weather events can restrict the affordability of re/insurance in certain regions, especially in coastal areas, by requiring a rise in premiums. While climate projections are associated with a large range of uncertainty, especially when it comes to storms making landfall, increases in the frequency and severity of tropical storms are likely. Natural variability is expected to remain the dominant factor in the short and medium term (2025 and 2030). In the longer term (2040), a rise in sea levels will lead to non-linear increases in storm surge risk for coastal areas. Additionally, warmer temperatures will lead to more extreme rainfall events that may increase flood risk.
If rises in re/insurance premiums, necessitated by increasing extreme weather risks, remain modest, ie re/insurance protection remains economically viable for our clients, the overall premium volume will potentailly grow. Larger increases, however, will eventually reverse this effect by pushing re/insurance prices for certain exposed risks beyond the limits of economic viability. This is particularly relevant for areas with inadequate construction planning and development. In addition, timing is of crucial importance: if measures to exclude a particular risk are taken too early we may offer our clients less insurance protection; if measures are taken too late, we may end up with increased claims.
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, and the IPCC Special Report on the impacts of global warming of 1.5°C).
In addition, we expect weather risk to remain assessable by scientific methods, meaning we can continue to update our loss models in the future to assure adequate costing of extreme weather events. Since most of the re/insurance contracts with our clients have a duration of one year, we can adequately price natural catastrophe risks by updating our models to reflect the current climate risks.
Regarding the long-term time horizon (2040), we expect a substantial need to adjust some of our weather risk models, based on current scientific knowledge. We are confident, however, that future research will continue to give us sufficient guidance on the magnitude and direction of these adjustments. The potential impact of climate change, including natural variability, is already being assessed and integrated into our risk view today, eg through regular updates of tropical cyclone frequencies. Furthermore, we conduct internal research and collaborate with academia to study the impact on extreme weather events in the near and medium term.
In line with independent external studies, we have shown through a series of scenario assessments (Economics of Climate Adaptation studies, ECA), that in many regions, climate adaptation measures need to be taken to limit expected increases in natural catastrophe damages and thus to ensure the economic viability of re/ insurance in the future. This is a key reason why Swiss Re actively engages with the United Nations, the public sector, clients, industry peers and employees to advocate cost-effective adaptation to climate change.
Impact on real assets exposed to weather-related perils Real assets such as real estate are exposed to natural perils, eg hurricanes, tropical cyclones and floods. In addition to considering physical risks when acquiring new properties, we analyse these exposures across the portfolio based on our proprietary modelling capabilities used for our re/insurance underwriting. This analysis has been extended and refined recently, with results suggesting a very low exposure to natural perils in general and to climaterelated perils in particular.
As a result, we have not faced any new claims from climate-related litigation in recent years and the results of the litigation, which have remained in favour of the defendants, suggest that this trend will likely continue, but warrants continued monitoring.
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. Research and development is thus required to develop possible loss scenarios and the related expenses. Once these are developed and tested, new technologies are likely to present the sector with an opportunity to offer new solutions (see “Climate-related opportunities”, page 158).
This transition does not, however, automatically translate into a financial risk for us. For example, motor insurance is the most important business line of the re/insurance sector globally. According to Swiss Re’s sigma database, it currently represents approximately 33% of global non-life gross written premiums and is expected to grow further, albeit at a lower rate.
Driven by intensifying efforts to curb climate change, the global motor vehicle inventory will shift from combustion to electric engines. In a Swiss Re study on the casualty risk trends in the automotive industry, we noted that the move from conventional (pure combustion engine) cars to more electrically based mobility is a transition process that is likely to increase in the coming years. This development will entail the implimentation of a variety of new technologies, from new lightweight materials to advanced battery systems.
As a first step in 2018, we introduced a thermal coal policy for our underwriting, pledging not to provide re/insurance to businesses with more than 30% exposure to thermal coal utilities or mining. The policy is fully integrated into our Sustainable Business Risk Framework. It applies to both old and new thermal coal projects and across all lines of business. While it is easier to implement this policy in some parts of our business, for others the transition will take some time and require a continued and constructive dialogue with our clients. In 2019, we continued the implementation of the thermal coal policy for treaty business and engaged with over 300 insureds across all regions on this topic.
Transition risks in our investments Climate-related risks can impact the value of our investments and are therefore considered a substantial part of our Responsible Investing Strategy. A key risk for asset owners is that a changing environment may result in a specific company or a particularly exposed industry becoming a stranded asset in investment portfolios, ie the devaluation of investments driven by unfavourable changes, such as increased taxes or new regulations. With regard to climate change, the market environment could shift to address mitigation and adaptation requirements to limit a global temperature rise to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C.
Governments and regulators have started to develop proposals to steer and transition climate change-related market activities to more sustainable alternatives. The European Commission’s Action Plan for Financing Sustainable Growth and the UK’s Green Finance Strategy, which legislates for net-zero emissions by 2050, are just two examples.
Industries and companies that are particularly exposed to changes in policy and legal, as well as technological developments, show elevated risk exposures either in the production process, in raw materials, in transportation/logistics or distribution and store operations due to high carbon footprints in these areas. Furthermore, industries may face increased costs due to higher or more volatile energy prices, compliance costs in the production and distribution process, and costs from product demand substitution. All these changes may cause increased price volatility of the underlying assets.
As of 2018, we also excluded oil sands companies that generate 20% or more of their revenues from such operations from the investment universe. In 2019, we extended our mitigation approach to an absolute coal threshold: we do not invest in mining companies producing at least 20 million tonnes of coal per year and power utility generators with more than 10 gigawatts of installed coal fire capacity.
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 can help them cope with current climate risks. The same applies to our weather insurance solutions.
You can read about our involvement in some new offshore wind farm projects in our 2019 Sustainability Report, pages 29–30.
As part of our adaptation strategy, we consider investment opportunities that enable a low-carbon economy: Green bonds Green bond proceeds are used exclusively to finance environmentally sustainable projects that address key areas of concern, including climate change, but also natural resource conservation, biodiversity conservation, and pollution prevention and control. We support the transition towards a low-carbon economy by investing into green bonds following the ICMA Green Bond Principles. As of 31 December 2019, we held USD 1.8 billion of green bonds and are targeting a portfolio of USD 4.0 billion by the end of 2024. We have embraced the opportunity to participate in the impressive average market growth of 54% p.a. since 20141,2.
Real estate Our real estate investment portfolio comprises commercial and residential buildings with a total market value of USD 4.7 billion as of 31 December 2019. These are predominantly located in Switzerland, the US, Germany, Australia, the UK, and Central and Eastern Europe. As ESG criteria are considered a key pillar of long-term sustainable value creation, we incorporate them into decision-making throughout the whole operating model, including external investment manager due diligence.
77% Keine Zertifizierung 1 Includes projects under construction, land and non-heated assets.
In the US, our approach to sustainability includes some of the most recognised certificates and guidelines such as “GreenGuide: Sustainable Property Operations”, a best-practice guideline for sustainable and efficient real estate operations, as well as the LEED certification of the US Green Building Council (USGBC).
2019 was the third year in a row that the US portfolio achieved four out of five stars in GRESB. The 2019 GRESB score increased by 4 points (+5%) to 82.
41% NABERS Energy 5 14% NABERS Energy 4/4.5 45% NABERS Energy < 4 or not certified
Looking at climate effects in isolation would mean ignoring the other factors that will shape Swiss Re’s future re/insurance book and thus also our future AEL. These include our strategy and risk appetite, market conditions, capital costs, insurance penetration, storm hardening and other climate adaptation measures. Since our re/insurance book and current AEL are the result of a complex interaction between all of these factors, any future scenario would have to consider all of them, in the process rendering the effect of climate change on the resulting AEL marginal. Moreover, the future AEL for Swiss Re’s weather-related re/insurance book will depend both on our future market share and scenario projections of overall business volume. Independent studies have shown a wide uncertainty range for future market business volumes (see eg Kunreuther et. al., 2012)3, thus rendering any long-term projections highly uncertain.
Natural catastrophes constitute one of the core risks modelled in Swiss Re’s risk landscape. Specifically, they are one of three categories in which we classify and model our P&C re/insurance risks (the other two being man-made and geopolitical risks). These risks arise from the coverage we provide to our clients for property, liability, motor, accident and specialty risks.
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 our different lines of business.
For the other types of transition risks described on pages 156 and 158, 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.
Our Sustainable Business 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 2019 Sustainability Report, pages 35–37.
At the 2019 UN Climate Summit in New York, the UN-convened Net-Zero Asset Owner Alliance (AOA) was launched. As a founding member of the AOA, we have committed to having a net-zero greenhouse gas investment portfolio by 2050 (www.swissre.com/un-climate-actionsummit ). We also joined the global Science Based Targets initiative and will develop science-based emission reduction targets (www.sciencebasedtargets.org). Our commitment also includes advocacy for measures aimed at a low-carbon transition of economic sectors.
We use a number of metrics and targets to assess and manage relevant climate-related risks and opportunities.
Reflecting our efforts to help expand re/insurance protection by working with public-sector clients, we made a 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 of insurance cover against this risk by 2020. You can see the progress we have made against this goal in the middle table on page 165. We also made a commitment to the Insurance Development Forum (IDF), in line with the InsuResilience Vision 2025 goals. This includes delivering climate and other natural hazards risk modelling, developing risk transfer solutions as well as offering capacity for climate risk insurance to increase insurance protection for selected climate-exposed countries.
Weather-related catastrophes: insured vs uninsured losses There is a substantial protection gap between total economic losses from weather-related catastrophes and insured losses in all regions. This data does not represent a company-specific metric but is an important overall risk indicator (see upper right table on page 165).
From July 2021, we will no longer provide individual insurance covers for those oil and gas companies that are responsible for the world’s 5% most carbon-intensive oil and gas production.
From July 2023, we will no longer provide individual insurance cover for those oil and gas companies that are responsible for the world’s 10% most carbon intensive oil and gas production.
Versicherte Schäden Quelle: Swiss Re Institute*Nordamerika und Lateinamerika/Karibik in Mrd. USD, zu Preisen von 2019
Absolute coal threshold Coal assets are particularly carbon-intensive and susceptible to stranded asset risk given the long life of these assets, as well as the evolving regulations on carbon emissions. To ensure we actively manage such risks, we implemented an absolute coal threshold to identify large carbon emitters with a diversified business mix, where relative thresholds may provide inadequate guidance. Our willingness to tackle climate change challenges is reflected in our new, 2019 commitment to not invest in mining companies producing at least 20 million tonnes of coal per year and power utility generators with more than 10 gigawatts of installed coal fire capacity.
The US credit portfolio remains below its corresponding benchmark in terms of weighted average carbon intensity, given its continued underweight in high carbon intensity names after divestments in the energy and materials sector.
Since 2018, the UK credit portfolio carbon intensity decreased, whereas the index carbon intensity remained approximately stable.
The portfolio of listed equities continues to be significantly less carbon-intensive compared to the corresponding benchmark due to its focus on high quality companies with low-carbon intensity. Moreover, in 2019, the carbon intensity decreased as a result of the portfolio optimisation.
since 2013 1 Calculation based on a market-based approach taking into account the purchase of renewable energy instruments, with the exception of the UK, where the government requires companies to report an average grid factor.
Swiss Re Group Scope 1, 2 and 3 greenhouse gas emissions Reducing our operational carbon footprint is an important part of our Group Sustainability Strategy. As part of our Greenhouse Neutral Programme, we have publicly reported on our Scope 1 and 2 greenhouse gas emissions, plus a major source of Scope 3 emissions (business travel) since its launch in 2003. From 2013, we have expanded our reporting to include further Scope 3 emissions (see table below).
Note 18 Compensation, participations and loans of members of governing bodies 268
Premiums earned 3 33 875 37 974 Fee income from policyholders 3 586 620 Net investment income – non-participating business1 7 4 075 4 171 Net realised investment gains/losses – non-participating business2 7 65 1 580 Net investment result – unit-linked and with-profit business 7 –1 593 4 939 Other revenues 39 30
Interest on contingent capital instruments, net of tax –41 Comprehensive income attributable to non-controlling interests –91 –383
Balance as of 1 January 1 905 –3 6 –5 904 –828 5 –4 819 Transactions with non-controlling interests –128 1 64 7 –56 Change during the period 5 668 –57 –93 –2 5 516 Amounts reclassified out of accumulated other comprehensive income –1 491 48 135 46 –1 262 Tax –802 2 –89 18 –871
Cash and cash equivalents (including 717 in 2018 and 1 257 in 2019 subject to securities lending, and 1 175 in 2018 and 4 in 2019 backing unit-linked and with-profit contracts) 5 985 7 562 Accrued investment income 1 052 673 Premiums and other receivables 13 789 15 271 Reinsurance recoverable on unpaid claims and policy benefits 7 058 5 898 Funds held by ceding companies 9 009 9 472 Deferred acquisition costs 6 8 217 7 838 Acquired present value of future profits 6 1 818 1 042 Goodwill 4 071 3 945 Income taxes recoverable 526 466 Deferred tax assets 15 5 411 4 726 Other assets 3 332 3 489 Assets held for sale¹ 11 74 439 1 Please refer to Note 11 “Assets held for sale“ for more details.
Liabilities Unpaid claims and claim adjustment expenses 5 67 446 72 373 Liabilities for life and health policy benefits 8 39 593 19 836 Policyholder account balances 31 938 5 405 Unearned premiums 11 721 13 365 Funds held under reinsurance treaties 3 224 3 521 Reinsurance balances payable 920 889 Income taxes payable 597 378 Deferred and other non-current tax liabilities 15 6 471 5 663 Short-term debt 12 1 633 185 Accrued expenses and other liabilities 7 6 798 7 191 Long-term debt 12 8 502 10 138 Liabilities held for sale¹ 11 68 586
Equity Common shares, CHF 0.10 par value 2018: 338 619 465; 2019: 327 404 704 shares authorised and issued 32 31 Additional paid-in capital 496 256 Treasury shares, net of tax –2 291 –2 220 Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax 1 905 5 152 Other-than-temporary impairment, net of tax –3 –1 Cash flow hedges, net of tax 6 –2 Foreign currency translation, net of tax –5 904 –5 794 Adjustment for pension and other post-retirement benefits, net of tax –828 –850 Credit risk of financial liabilities at fair value option, net of tax 5 3
Contingent capital instruments Balance as of 1 January 750 0 Changes during the period –750 Balance as of period end 0 0
Other-than-temporary impairment, net of tax Balance as of 1 January –2 –3 Changes during the period –1 2 Balance as of period end –3 –1
Credit risk of financial liabilities at fair value option, net of tax Balance as of 1 January 0 5 Impact of ASU 2016-012 5 Changes during the period –2 Balance as of period end 5 3
Non-controlling interests Balance as of 1 January 170 797 Transactions with non-controlling interests1 688 606 Income/loss attributable to non-controlling interests 19 42 Other comprehensive income attributable to non-controlling interests: Change in net unrealised investment gains/losses 191 380 Change in foreign currency translation –109 –25 Other –10 –14
Change in cash and cash equivalents –821 4 306 Cash and cash equivalents as of 1 January 6 806 5 985 Reclassified to assets held for sale –2 729
The Group considers both the credit risk of its counterparties and own risk of non-performance in the valuation of derivative instruments and other over-the-counter financial assets. In determining the fair value of these financial instruments, the assessment of the Group’s exposure to the credit risk of its counterparties incorporates consideration of existing collateral and netting arrangements entered into with each counterparty. The measure of the counterparty credit risk is estimated by incorporating the observable credit spreads, where available, or credit spread estimates derived based on the benchmarking techniques where market data is not available. The impact of the Group’s own risk of non-performance is analysed in a manner consistent with the aforementioned approach, with consideration given to the Group’s observable credit spreads. The value representing such risk is incorporated into the fair value of the financial instruments (primarily derivatives), in a liability position as of the measurement date. The change in this adjustment from period to period is reflected in realised investment gains and losses in the income statement.
For assets or derivative structures at fair value, the Group uses market prices or inputs derived from market prices. A separate internal price verification process, independent of the trading function, provides an additional control over the market prices or market inputs used to determine the fair values of such assets. Although management considers that appropriate values have been ascribed to such assets, there is always a level of uncertainty and judgement related to these valuations. Subsequent valuations could differ significantly from the results of the process described above. The Group may become aware of counterparty valuations, either directly through the exchange of information or indirectly, for example through collateral demands. Any implied differences are considered in the independent price verification process and may result in adjustments to initially indicated valuations. As of 31 December 2019, the Group had not provided any collateral on financial instruments in excess of its own market value estimates.
Deferred acquisition costs for short-duration contracts are amortised in proportion to premiums earned. Future investment income is considered in determining the recoverability of deferred acquisition costs for short-duration contracts. Deferred acquisition costs for longduration contracts are amortised over the life of underlying contracts. Deferred acquisition costs for universal-life and similar products are amortised based on the present value of estimated gross profits. Estimated gross profits are updated quarterly.
The underlying assets and liabilities acquired are subsequently accounted for according to the relevant US GAAP guidance. This includes specific requirements applicable to subsequent accounting for assets and liabilities recognised as part of the acquisition method of accounting, including present value of future profits, goodwill and other intangible assets.
Acquired present value of future profits The acquired present value of future profits (PVFP) of business in force is recorded in connection with the acquisition of life and health business. The initial value is calculated as the difference between established reserves, which are set up in line with US GAAP accounting policies and assumptions of the Group, and their fair value at the acquisition date. The resulting PVFP, which could be positive or negative, is amortised on a constant yield basis over the expected revenue recognition period of the business acquired, generally over periods ranging up to 30 years, with the accrual of interest added to the unamortised balance at the earned rate. Amortisation and accrual of interest are recognised in acquisition costs. The earned rate corresponds to either the current earned rate or the original earned rate depending on the business written. The rate is consistently applied for the entire life of the applicable business. For universal-life and similar products, PVFP is amortised in line with estimated gross profits, which are updated quarterly. The carrying value of PVFP is reviewed periodically for indicators of impairment in value. Adjustments to PVFP reflecting impairment in value are recognised in acquisition costs during the period in which the determination of impairment is made, or in other comprehensive income for shadow loss recognition.
Goodwill The excess of the purchase price of acquired businesses over the estimated fair value of net assets acquired is recorded as goodwill, which is reviewed periodically for indicators of impairment in value. Adjustments to reflect impairment in value are recognised in earnings in the period in which the determination of impairment is made.
The excess of estimated liabilities for claims and claim adjustment expenses payable over consideration received in respect of retroactive property and casualty reinsurance contracts is recorded as a deferred expense. The deferred expense on retroactive reinsurance contracts is amortised through earnings over the expected claims-paying period.
Income taxes Deferred income tax assets and liabilities are recognised based on the difference between financial statement carrying amounts and the corresponding income tax bases of assets and liabilities using enacted income tax rates and laws. A valuation allowance is recorded against deferred tax assets when it is deemed more likely than not that some or all of the deferred tax assets may not be realised.
Unpaid claims and claim adjustment expenses Liabilities for unpaid claims and claim adjustment expenses for property and casualty and life and health insurance and reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims, using reports and individual case estimates received from ceding companies. A provision is also included for claims incurred but not reported, which is developed on the basis of past experience adjusted for current trends and other factors that modify past experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and judgements made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses will not exceed the loss reserves currently established. These
Universal-life-type contracts are long-duration insurance contracts, providing either death or annuity benefits, with terms that are not fixed and guaranteed.
Unit-linked and with-profit business are presented together as they are similar in nature. For unit-linked contracts, the investment risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the downside risk for the policyholder, and a certain proportion of the returns may be retained by Swiss Re Group (typically 10%). Additional disclosures are provided in Note 7 “Investments“.
Funds withheld assets are assets that would normally be paid to the Group but are withheld by the cedent to reduce a potential credit risk or to retain control over investments. In case of funds withheld liabilities, it is the Group that withholds assets related to ceded business in order to reduce its credit risk or retain control over the investments.
The deposit method of accounting is applied to insurance and reinsurance contracts that do not indemnify the ceding company or the Group against loss or liability relating to insurance risk. Under the deposit method of accounting, the deposit asset or liability is initially measured based on the consideration paid or received. For contracts that transfer neither significant timing nor underwriting risk, and contracts that
186 Swiss Re | Financial Report 2019 transfer only significant timing risk, changes in estimates of the timing or amounts of cash flows are accounted for by recalculating the effective yield. The deposit is then adjusted to the amount that would have existed had the new effective yield been applied since the inception of the contract. The revenue and expense recorded for such contracts is included in net investment income. For contracts that transfer only significant underwriting risk, once a loss is incurred, the deposit is adjusted by the present value of the incurred loss. At each subsequent balance sheet date, the portion of the deposit attributable to the incurred loss is recalculated by discounting the estimated future cash flows. The resulting changes in the carrying amount of the deposit are recognised in claims and claim adjustment expenses.
Treasury shares Treasury shares are reported at cost in shareholders’ equity.
Adoption of new accounting standards In February 2016, the FASB issued ASU 2016-02 “Leases”, which creates topic 842, “Leases”. The core principle of topic 842 is that a lessee should recognise the assets and liabilities that arise from leases. A lessee should recognise in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. This accounting treatment applies to finance leases and operating leases. The accounting applied by a lessor is largely unchanged from that applied under the former lease guidance. The ASU also requires that for qualifying sale-leaseback transactions the seller recognises any gain or loss (based on the estimated fair value of the asset at the time of sale) when control of the asset is transferred instead of amortising it over the lease period. The Group adopted ASU 2016-02 on 1 January 2019 together with the following related ASUs on topic 842, “Leases“: ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01. In line with the modified retrospective adoption approach provided by ASU 2018-11“Targeted Improvements“, the Group applied the new leases standard to its leases on the adoption date and recognised at the same time a cumulative-effect adjustment to the opening balance of retained earnings. For operating leases, the adoption on 1 January 2019 led to the balance sheet recognition of a lease liability of USD 538 million and a right-of-use asset of USD 490 million, which equals the lease liability adjusted by existing lease incentive and straight-line rent reserve balances. The lease rightof -use asset is included in “other assets“ and the lease liability is included in “accrued expenses and other liabilities“ on the balance sheet. The Group elected a package of practical expedients under the transition guidance within the new standard, which among other things allowed it to carry forward the historical lease classification. The cumulative-effect adjustment to the opening balance of retained earnings of USD 92 million resulted from the release of a deferred profit from past sale-leaseback transactions which was carried in accrued expenses and other liabilities. The deferred profit release can be found in the statement of shareholders’ equity. The required new disclosures on leases are provided in Note 13 “Leases“.
In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities“, an update to subtopic 31020, “Receivables – Nonrefundable Fees and Other Costs“. The update applies to certain purchased callable debt securities held at a premium. The ASU requires that those premiums should be amortised to the earliest call date and not to the maturity date. The Group adopted ASU 2017-08 on a modified retrospective basis on 1 January 2019. The adoption did not have a material impact on the Group’s financial statements.
In June 2018, the FASB issued ASU 2018-08, “Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made“, an update to topic 958, “Not-for-Profit Entities“. The amendments in this update clarify and improve the former guidance about whether a transfer of assets (or the reduction, settlement, or cancellation of liabilities) is a contribution or an exchange transaction. The Group adopted ASU 2018-08 on a modified prospective basis on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
In October 2018, the FASB issued ASU 2018-16, “Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes“, an update to topic 815, “Derivatives and Hedging“. The amendments in this update permit the use of the OIS rate based on SOFR as a US benchmark interest rate in order to facilitate the LIBOR to SOFR transition. The Group adopted ASU 2018-16 on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
Future adoption of new accounting standards In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses”, an update to topic 326, “Financial Instruments – Credit Losses”. ASU 2016-13 replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The standard is applicable to all financial assets such as financial instruments that are measured at amortised cost, availablefor -sale debt securities and reinsurance recoverables. The objective of the expected credit loss model is that a reporting entity recognises its estimate of expected credit losses incorporating forward-looking information in a valuation allowance for financial assets in scope. As amended by ASU 2019-10 “Effective Dates”, ASU 2016-13 is effective for annual and interim periods beginning after 15 December 2022. For most affected financial assets, the ASU must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to opening retained earnings on the adoption date. The Group is currently assessing the impact of the new requirements.